Havells India Limited (HAVELLS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '22 Earnings Conference Call of Havells India hosted by HDFC Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Naveen Trivedi from HDFC Securities. Thank you, and over to you, sir.

Yes. Hi, good morning, everyone. On behalf of HDFC Securities, I would like to welcome the management of Havells India Limited to discuss the post 2Q F '22 results. We have with us today the senior management of Havells India represented by Mr. Anil Rai Gupta, Chairman and Managing Director; Mr. Rajesh Gupta, Whole Time Director Finance and Group CFO; Sir Rajiv Goel, Executive Director; and Mr. Ameet Kumar Gupta, Whole Time Director. I will now hand over the call to the management for their comments. Thank you, and over to you, sir.

Thank you, Naveen. Good morning, everyone. Hope you would have reviewed the Q2 results. The company delivered broad-based growth across categories. Except for cables, there has been healthy volume growth in each segment. Real estate up cycle, improved outlook of industrial and infrastructure sector, and consumer optimism will support revenue growth in the upcoming quarters. Despite unprecedented levels of input cost inflation and continued volatility, we are hopeful to improve margins going forward. We may now proceed for Q&A.

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

My first question is with respect to the volume and value growth breakup. I know multiple products are there. But if you give rough sense on what has been the kind of value growth and volume growth across each of the categories or at least at a company level I suppose would be...[indiscernible]

So I would say that except for cables, there's almost 80% is price led. I think for the rest of the categories, we would say that it's almost 50% price led and 50% volume led. So that's how we would've met -- lighting, there is more of a volume-led growth kind of pricing. But overall, other than cable, we can say it's 50-50.

Got it, sir. And I mean commodity price have continue to rally even over the past few days, copper, once again has kept going up. Other commodities are also rallying. So basically, what is your sense on further price increase? Are we going to take further price increases going forward to offset for the commodity price?

That's right, Ravi. Actually, even in the last few months, it had increased, and there is always a delay in passing on the price increase, especially for example, in products like air conditioners that season was not there. So it has higher levels of inventory in the industry. So yes, there will be price increases, not only for the past, but as you rightly have pointed out, that there is continued volatility in raw materials. But then again, we have to take a view of the averaging because we can't take an immediate decision and then replace that. So we generally take some time to let things stabilize and then pass it out to the market. But as things stand, yes, there could be possibilities of further price increase.

Got it, sir. And my last question is with respect to the 2 hedge kind of revenue on demand. So last year, we were sitting on a very high base of -- on an average, 40%, 45% growth. This year, second half, are we confident to grow it, match it or probably it might even see some decline? You can give a broad talk about it.

I think there is no doubt that last year was a time of pent-up demand, especially in the -- what we saw in the third quarter. But I think we are quite enthused by the fact that last year was pure pent-up demand and coming from the consumer and B and C class towns. Whereas this year, the growth or the demand that we are seeing is across segments and across regions. And what is healthy is that we are seeing good demand coming from the residential sector as well as industrial and infrastructure. So which was not the case last year. The real estate was still under stress. I think real estate has started doing well in the last 6 to 8 months on consumer -- the industrial interest demand is also picking up. So I think that actually gives us confidence that the next 6 months could also be a decent growth.

So they'll be able to grow over the last year's pace?

Well, that's only time will tell, but at least what we are seeing that the demand pickup is positive.

The next question is from the line of Venugopal Garre from Bernstein.

Two questions from me. First is on Lloyd. Can you describe a bit more on the market conditions and what you see as the drivers for the hypercompetitive environment that you mentioned? That's my first question.

So I think Lloyd witnessed 2 years of lockdown in the high season months, April -- March, April, May are the biggest months for air conditioners, and still 70% of sales of Lloyd come from air conditioners. So overall, in the system, there was high inventory buildup for the season, which we -- the industry was not expecting that it will be a lockdown again. So there was high inventory. And when we came out of the lockdowns, the inventory put pressure on the fact that companies and, including Lloyd, we wanted to sell the inventories and lower production also because everybody was stacked with inventory. So passing on the entire cost increase became a difficulty and the industry is waiting for the right season to come in to pass on the entire cost increase. So that is what I meant by the fact that there is lag behind the cost increase and passing it on to the market.

The second question is more to -- more from a perspective of the volume growth, which based on your commentary, appears to be ex cable. As you mentioned, 50% is volume, 50% is driven by pricing. So it looks like probably 10%, 12% is a broader volume growth, excluding cables, if I were to look at it, right? Correct me if that is wrong, but the perspective I wanted to highlight is that this sort of a demand growth on the volume side, how do you characterize it compared to what used to be in normal environment? Because to me, it appears that in normal growth environment, you actually tend to see only this much like because of a healthy growth of 10% to 12%, but this doesn't some exceptional growth. So is it a different way that one should look at, the growth environment at this venture?

Well, I think I would term it as exceptional in the sense because when there is high inflation, you would expect that the demand to be curtailed and maybe there might be a degrowth because of high inflation and people would delay their purchases and -- so the fact that the demand continues to remain strong, is also reflecting the fact that the consumer continues to buy the real estate buyers, contractors continue to buy even at these prices. So actually, it orders very well when things stabilize. This -- we believe that this growth intake or better than this should continue.

The next question is from the line of Renu Baid from IIFL.

So my first question is, given that you've highlighted steep inflationary pressures and volumes still being steady. Are you seeing any risk with respect to down trading by consumers, especially given these headwinds in the market?

Well, We've not seen that much in that thing. Again, in electrical products, in fact, I would argue Renu that then when there is high inflation times, there is a shift from unorganized sector to organized sector because when people are spending more on an electrical installation in the house, because of the raw material increases, they would want to even go stretch a bit beyond and go for trusted brands and high-quality products. So we've actually seen that there is improvement in the kind of purchasing which happens. However, we are also wary of the fact that India is a large country with varied customers all across regions as well as channels. And today, I would say that Havells is far more balanced in terms of offering different brands and different feature led products to the consumers, whether it is for affordable housing or for premium customers. So we have a vast array of products and brands across categories.

Sure. This is where I have the second question linked that last year, we had a reasonable share gain coming in from shift from unorganized to organized plus smaller players losing share. Now in the current environment where everything seems to be now getting back to normal, both on supply chain as well as business operations. Are we seeing the share gains being sustained? And across some of the key categories, are you seeing any signs of consolidation or market share gains further tendering because of some other brands losing out?

Yes. I think market shares gains and consolidation would continue to happen. In fact, in an inflationary environment, the relative gap between unorganized and organized sector reduces. The other thing is we've also seen though we've been able to manage it well, there has been supply chain disruptions. And for organized sector, it is easier to manage as compared to the unorganized sector. So there are supply chain disruptions. And volatility in the raw material also is managed better by large and organized players. So I would say that the shift is coming. And hopefully, with the larger part of the wallet share, I think this shift will continue to happen.

Sure. Sir, the second question is on the ASP spending, which was anyway relatively muted in the last few quarters for Havells. We have seen further shrinkage in this quarter. So by when are we expecting to finally revert back to normal [ A&P ] spend of at least 2%, 2.5% of revenues. And do you think that shrinking these spend can have medium-term implications on growth in a hypercompetitive market?

Yes. I think the investment for Havells and brands continues to remain. And from this year, last year was a COVID year this year -- from this year, we had decided that we will start investing back into the brand at normalized levels. The muted spends in the first quarter first -- second quarter first half is more because of the timing effect. We definitely see normalized A&P spends coming in because of the festive season plus the demand for summer products coming in, in the next 6 months. So we will start seeing coming back to normalized level soon.

Sure. And my last question, if I can ask on Lloyd. Where are we in terms of investment in channel distribution for the non-RAC portfolio, specifically [ rest ] which were launched and washers. And do we have any medium-term target, which can be shared in terms of market share or revenue growth for these categories?

I think we are well positioned. Again, any new category requires a good amount of time to get deeper into distribution. But we are moving forward in terms of penetration in the channel. And if there's good acceptance both in the new models of washing machines as well as the new category of refrigerators. Good acceptance from the trade. Obviously, the consumer demand has to be generated over a period of time. But we are quite hopeful that in the coming times, these 2 categories would become a sizable part of Lloyd.

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

Sir Sorry, again, drilling more on the demand side because you always give [ street ] a very fair outlook on the demand. Now at one end, you are saying that demand outlook is very good because of the real estate part. At the other end, we are seeing there is a lead lag in pricing, which you were not able to say some margin should normalize going forward. Then the demand my first question is when the demand was so strong, what stopped you taking the price hike even in this quarter? And the other part of this question is that despite a market share gain from an unorganized -- the volume growth is still about 10%, 12% which is a normal growth rate, which used to do pre-COVID. So I'm sorry, sir, I just found this statement very contradictory. So just thought we'll ask you and I have 2 more questions after that.

Okay. Intelligent question, I would say. I would say that when we -- we are not really in a commodity industry where raw materials or input costs go up, and the next day, you increase prices. There is a trade in between. There is an expectation of how the competition is behaving. And so there is always -- and this is a very different time than normal cost increase of 2% to 5%. There is unprecedented price increases. Copper has grown 100%, steel has gone up 100% in the last one year. So it is never a time where things settle down. So in the trade acceptance of the product, the pricing, everything has to take time. So there is a lag behind that. And again, as I said, we can't compare it to a commodity industry. So brand and distribution industry pays very differently. And of course, you can say it's almost like a testing of both the trade and the consumer, that what is the price elasticity for demand not to start getting impacted. So that's something which continues to remain. And that's the reason for the lag. The second question, and I think I alluded to a bit before as well, that despite the fact that there is such high inflation, which has again not been seen in the I would say, past years or at least my experience, the fact that we see volume growth of normalized times is actually quite a good indication that the demand is strong. So I would argue that during such an inflation time, the demand would soften both for the consumer as well as for the industrial and residential real estate developers. But the fact that volume growth is continuing which actually these segments have seen muted growth or even degrowth in the last few years. So there has been in such an inflation trend, if it is increasing. So it's a very, very good indication for the future.

Got it. And sir generally, with respect to 2 things. One is the inventory in the channel, how we have placed there? And generally as a sentiment as a customer sentiment and the retail. Is it safe to assume that this quarter was more of retail lower than the wholesale channel filling was higher? And then in this quarter seems to be where the company expects the retail finally to start picking up.

No, I would not say that this was a quarter of filling up. I would say that the primary to secondary ratio would be same. It would not be that this was a time of filling up the trade.

So the inventory, one can assume it's still at a very normalized level?

Normalized level. I would say the inventories are at normalized levels.

And just one last question on the Lloyd, there's a comment came by the company in the presentation, the high complicated scenario. Now sir this industry has been competitive from last 10 years, I think, next 10 years also will be competitive. But is it more of a quarter phenomena that takes an issue because we talked about last few years of making up plants, supply chain will be very strong and now we will make more margins. But when that 2%, 3% market share has come to 4%, 5%, the growth is becoming difficult for Lloyd in the AC business. So I just wanted to understand, it's more of a quarter phenomena. Or because this competitive comment will be there forever. So just your take on that.

I would say that this is more of the last couple of years of industry as a whole because of the lockdowns and the major season going away for air conditioning industry. So the benefit, which should have come because of many decisions by the government, whether it is imposition of ban, on imports and all that, that really didn't help us gain any market shares or gain big volumes in this thing. I think we'll have to wait for the next season to actually see the real effects for Lloyd as a risk for the industry.

The next question is from the line of Siddhant Behera from Nomura.

I would first continue with the last question on Lloyd. Basically, I wanted your thoughts on medium term, like we understand in the past, there have been some issues because of lockdowns and all. But in general, what is your medium-term target of any market share in the AC segment or anything, if you can highlight just for us to understand where can Lloyd be, say, 3, 4 years? And what are the steps we plan to do to achieve that?

I would say that our outlook on Lloyd continues to remain extremely strong. We did this acquisition to enter into a high-growth industry where Havells was not here to present. So that continues to remain strong. And the investments that we've made in this indicates the fact that we are quite positive over it in the medium and long term. And the steps that have been taken is, of course, investment in manufacturing, brand and distribution. All 3 things, those investments continue to remain. And I would say that our focus in the next few years for Lloyd would be to gain a healthy market share in each product category. I would even say that this would be the main criteria for Lloyd, that in each category, including air conditioners, we would like to see our market share grow in the coming times.

Got it. And even on the margin side, what will be your thought process anyway because this segment seems to be -- the competition remains high, and we do have our benefits of in-house plants. But apart from that, what really do you think will help us get a price advantage, which can improve margins? Or it will be entirely by backward integration according to you?

I would say it will be due to volume buildup and looking at even the export markets. So basically, we will continue to remain competitive in the market as depending upon the competitiveness in the industry. But the real emphasis would be on getting good growth as well as in reinvesting back the profits into brand building and distribution penetration.

Got it, sir. Sir, let me ask, last question is on the price hike side. So if you can just broadly indicate to us based on the current commodity prices, what will be the price hike required according to you broadly across segments, if you can, to sustain our past margins, that would be very helpful.

It will be very difficult to tell because the price -- there is too much volatility in the cost, and we usually wait for some time to see the stability in the price and then take the decision. It will be difficult for me to answer this question on the call.

The next question is from the line of Charanjit Singh from DSP Mutual Funds.

Sir, my question is firstly on Standard and Rio brand. If you can touch upon how has been their performance. And going forward, as we are seeing more penetration into the rural part of the market, how do you see these brands more relevant going forward?

Actually, they are quite relevant in fact, for our switchgear category for our buyers and cables category because Havells operates for a different customer segment and different channel. Standard continues to remain very strongly focused on distribution differentiation by having a different channel for more contractor based and regional strength. Rio continues to gain from the fact that it is catering to a customer segment, which is for affordable housing. And so I think the bank play or the bandwidth differentiation within the overall Havells portfolio is panning out very well, and we see good growth in the -- both these brands.

So will you be able to quantify like how large are now Standard and Rio brands become, right now?

Not able to. We actually look at it as not just as a brand but within this business category. So it will be -- we usually don't give these figures of how great these brands are. Because the whole idea is to be able to leverage manufacturing capabilities and design capabilities to cater digital print segments.

Okay. Sir, the other question is on switchgear category. If you look at 2-year CAGR, it has shown around 10% growth. And going forward, as you're talking about real estate revival, so on switchgear segment, specifically if you can touch upon both the residential as well as the industrial side, how that will pan out?

I believe that going forward, this will be strong because as you have seen in the last few years, switchgears sales were impacted both for Havells as well as for the industry. So I think given the fact that the industrial cycle is also strong as well as residential pickup is also strong. So I think switchgears definitely seems to be benefiting from that in the future.

Okay. So lastly, in terms of B2B, B2G side of the businesses, it's been touched point because in half, maybe we can see a significant pickup in the infrastructure-related execution. So how does that lead to this overall growth for us in terms of infrastructure as a segment contributing for us in overall revenue terms will you be able to qualify. That's my last question.

Yes. I think we see good traction in both B2B and B2G, industrial, Infra, all the segments. And also on the property side, we see from the developers as well. So I think as we alluded in the switchgear on the, let's say, lighting side, on the cable side everywhere, I think we see good traction. I think that's why we remain confident the growth momentum should continue despite the price headwinds.

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

First question on the Fans segment. If you could just talk about what would have been the industry volume growth either in Q2 or the first half. And how our market share would have moved in the Fan segment?

I believe that our focus on market share gains continues to remain I would say that here, we saw normalization of the inventory levels in the trade. And hence, not a very high volume growth in terms of Fans, as we've already said, almost 50% is price led growth. So I believe that because of the summer season not being very strong, we trade to trying to normalize their inventory levels. And now the inventory buildup will start happening from the third quarter and fourth quarter.

Okay, fair. And what will be our market share? And anything on how much would have gained you hope over the last 3, 6 months?

Well we -- I don't think we've ever given our market shares, but Havells continues to retain leadership position in the premium segment. As you know, Havells does not operate in the economy segment, which is still about 30%. But our strength and positioning in the premium segment is extremely strong.

Okay. Fair. Sir, secondly, very strong growth seen on the lighting side last quarter in Q2. And as you mentioned, it's largely volume-led. So is it more of B2B? Is it the fixtures picking up now as well. What's really driving that? Is it distribution? There's some color what's driving that very strong growth in lighting for us? And do you think that it's sustained?

So as you know, consumer lighting is actually very innovation and distribution oriented business. So over the last 3 or 4 years, there has been heavy investments in terms of -- because as you say, Havells is uniquely placed in this industry because we are one of the only manufacturers or sellers who manufacture the entire lighting as an depend upon imports or third-party manufacturing. So there has been a heavy focus on innovation. So there have been very good product additions to the consumer lighting. And last 2 or 3 years, there's been extreme rigorous focus on distribution penetration. So our penetration in the distribution, retail outlets is increasing our extraction from the from the retail outlets is increasing because of innovation, our attrition in rural is also helping lighting go to these areas, innovation in products like inverter buys for rural areas and all. So that has helped gain market share in lighting and at a very fast pace. So I think that is the reason for the volume growth in lighting.

Okay. Fair. And just a last one on the switches like switchgear, where you highlighted a pick up on the real estate side. So just wanted to understand, is this more region-specific, more, say, around Bangalore, driven by IT or some pockets in the metros? Or are you also seeing a very broad-based pickup on the real estate side, even in the Tier 2, Tier 3 kind of markets along with the Tier 1 market? And therefore, the confidence that this is [indiscernible]

I'll say it's a broad-based pick up. In fact, as compared to last year, it's more broad-based because last year was more [ 2A2, 303 ]. Now it is not only in the Tier 1 cities, but also as you rightly pointed out in the urban areas like IT sectors. So generally, there is a pickup from across the customer segments and the regions.

The next question is from the line of Sonali Salgaonkar from Jefferies India.

My first question is regarding pricing. I understand you can not comment on the quantification of the upcoming price hikes. But could you broadly quantify what has been the YTD price hikes on an average across your portfolio? And also how much price cycle took in Q2?

It will be difficult for me to get these numbers because each business behaves very differently. So again, lighting is very, very far and move from switchgear, where copper, steel, aluminum. So I don't want to attempt this answer in this call.

Got it, sir. Sir, secondly, on the demand, any thoughts on effective season demand now that Navratri is behind us and the Diwali is in the offing. And also, you mentioned that inventory situation is normal. Would that be true also for the air condition?

No. So sorry for taking your second question, air conditioners. Second and third quarter is the lowest season. So I think you need to pick up air conditioners, we need to see the demand coming from January on this. But as far as festive demand is concerned, usually, we've seen that the trade is quite positive at this point of time. And the pickup is strong, so which indicates that the trade is also hopeful as well as the initial signs are positive. So I do believe that the effective demand will continue to remain strong in the coming days because the early indications are positive.

Got it, sir. Sir, and lastly, any updates that you would like to share on the PLI scheme and also if any supply chain issues?

We have applied for PLI. I think we are awaiting the sort of regulatory approval for the same. So I think we will update as you receive the same. What was your second question? Sorry.

Sir we have applied for both LED and AC?

Only for air conditioner.

Okay. So the second question is if any supply chain issues.

No, we are not facing any significant supply chain. I think there are -- as you know, we are one of the few companies who are very well vertically integrated. Some challenges are there, but I will not say they are disproportionate.

And what is our import content currently?

That's very low, almost 90% we do ourselves.

The next question is from the line of [ Suresh Atikalia ] from Morgan Stanley.

My question is on other expenditure. So if I look at other SG&A and it's difficult to kind of compare it as a percentage of revenue because there's high inflation right now. So I look at the absolute numbers. And I know there will be some expenditure, which I am talking outside of ad spends, which would have been cut back. But when I look at ad spend, they are flat on a 2-year basis at INR 268 crores, even though first half versus first half of 2019, they are down 7%. So what I want to understand is how sustainable these numbers would be? And how should one look at these numbers going forward? Are there some specific savings that you are driving? That's one. Second, I just wanted your CapEx outlook for 3 years. And the third one was around market share for AC, I'm sorry if you've already answered this, but were you -- in your view, have you maintained market share or have lost a little bit of market share. So those were the 3 questions.

On the advertisement share portion, we have clarified there is no sort of...

Sir, my question was ex ad spend, if I look at other expenditures. So after contribution margin and between segment EBIT, if I look at other expenditure that was flat on an -- yes, so that number is flat on a 2-year CAGR basis on an absolute number. And I know as a percentage of sales is unfair to comment because the inflation 2 years back was different. So the current run rate of INR 268 crores, is that a sustained number? And has there been some specific savings that will continue from even in ensuing quarters?

As you remember, last year, we had mentioned that when COVID happened, we looked at the good cost, the bad cost. There were certain sustained cost takeouts, which happened. And of course, there is an increase over last year, wherein the good costs might have come back, but certain bad costs are out. So yes, what we have seen in the second quarter is sustainable going forward. Certain things, of course, will continue to increase with our continued investment on manpower. Otherwise, genuinely is the right SG&A expense for the second quarter. As far as advertising, we have already mentioned that there is no point in looking over last year or last to last year because of the timing, the first quarter had IPL in 2019. This quarter was a lockdown. So it's very difficult to compare. Going forward, we believe that the advertising levels will start coming back to normalized level. So I think this was your second question, there was another question.

Yes. CapEx outlook and AC market share on Q2, yes.

Again, it can't be looked at as a 1 quarter, but generally, in the last 1 or 2 years, we've started gaining market share.

Sure. And anything on the CapEx outlook, sir, for this year and following 2 years?

For this year, we estimate around INR 250 crores on a -- sorry.

INR 300 crores to INR 350 crores.

INR 300 crores to INR 350 crores as a total. And next year, we shall be coming back with our revised plans by the end of the fourth quarter.

One small clarification, and this's the last one. The contribution margin for cables and wires is quite low. And I know because of the commentary that we've made, but what I want to understand is that is the mix more towards cables and hence, it was slightly more difficult to pass it on? Or that is not the reason in this specific quarter, for contribution margin to be where it is for cables & wires?

So you're right. First of all, cable is difficult to pass on because of certain orders already in hand. But the -- actually, the mix was more towards -- skewed towards buyers in this case. And that's why we believe that there is more of a temporary phenomenon that we should start seeing margins improving from here.

The next question is from the line of Pulkit Patni from Goldman Sachs.

Just one question. Sir, do you think we could be in an inflation spiral where our channel partners are very well informed of where commodity prices are and that there will be price increases attempted? And as a result, they could be consuming more than what they would typically do, in which case, we could probably see some sort of prebuying happening, which could result in some slowdown in the outer quarter? Do you think that is something which is possible because our I understand all our channel partners are very well aware of how commodity prices are moving. That's the only question I have.

Again, a very intelligent question. But I think a lot of price increases happened between the second quarter of last year until about the first quarter of this year. And during the last quarter, there have been not -- I would say there is a normalization of inventory levels. There will always be some prebuying whenever there is an expectation. For example, the copper went up again, and there will be some prebuying happening just of those events. But then again, it takes about 15, 20 days to start coming back to normalized levels. So over a longer period of time, I think I would say trade is not only smart to pick up, but trade is also very smart to keep the ROCs intact.

The next question is from the line of Latika Chopra from JPMorgan.

My only question is on margin outlook in the beginning of your comments, you have mentioned that you're hopeful to improve margins going forward. Just wanting to check, is the confidence share on the gross margin levels? And is this driven more by you taking more price hikes going forward? Or are we looking at any other costings here as well?

So we believe that the kind of raw material volatility, which has remained. It is not -- it's possible that we've not been able to pass on the entire cost in the last few months, and there will be certain price increases if the raw material continues to remain high, but we are definitely hoping and viewing that if there is some sort of settlement there, then there would not be any requirement of a price increase, this would bring our margins to a little bit better level than before. Again, as we can't really see quarter-on-quarter because cables and buyers is lower because of inventory situation, the buying patterns and all that. And I think there also, we are hopeful that they should, over a period of time, come back to normalized level.

The next question is from the line of Achal Lohade from JM Financial.

It was partly addressed. Just wanted to clarify on the margins front. If you look at in the past, our margin range was between 13% to 14%, 14.5%, talking ex Lloyd at EBIT level. While if you see currently last 5 quarters, we've had between 17% to 19%, and the last quarter being at 15%. So just wanted to check, when you say that our margins would improve from here on: a, what -- so part of the margin expansion is obviously to do with the cost controls. And given the exceptional situation we are in, but if I were to ask you, sir, in a normalized situation, wouldn't some of these costs come back? So what is the extent of margin improvement would you see from the current levels?

The margin is -- again, I would say that I'm a bit surprised the fact that you want to know what is our margin target. There is no margin target. We always want to grow in terms of revenues, and we continue -- want to continue to invest in brand building and we have to continuously look at the competitive position. It's not really something like a margin target that we have where want to maintain 15%. If that was the case, then probably when it was going 17%, 18%, we should have curtained those margins. They've never happened like that. It was -- it's all dependent upon the revenue growth, the kind of investments that we're putting in, the raw material position at that point of time. But generally, there is a range of margin that the company would like to operate in. And that range is, I would say that because of the unprecedented cost increases, this has been at a lower level, and it has been at a higher level during the last 3 quarters. So there has been a range you can imagine that we would try and remain between this range in the coming quarters.

The next question is from the line of Naval from Emkay Global.

My question is on the others category. If I adjust for 1Q '22, this segment has been setting a new base on Y-o-Y basis. So if you can share some insights which category or across the categories, which are part of this are -- is it firing from all cylinders. And secondly, what is the margin aspiration also because that is now closer to double digits. So are we looking for similar to what we have in ECD category?

So in the others, as you have seen, I think most of our categories are doing well, particularly the motors have been doing pretty well for us. But I think we have always maintained these other category takes certain years, it will probably be start sort of see showing up both on the revenue growth as well as in the margin. So I believe there is a continuous improvement, which is happening on both these accounts in these categories. And I think we believe this can only further improve going forward.

Okay. And second question on cable and wires. So the way volume growth has been there across the other categories. And now as you mentioned, clearly, there's a strong demand in real estate and construction. So will this category also see now equal contribution coming from volumes as volume growth will be like stronger?

Well, I think we hope so, but you should be aware there has been an unprecedented sort of growth in the pricing in this business. But we do hope because of the factors which you also outlined that there should be a pretty decent volume growth in this business as well. So yes, I think the hope is pretty much on the positive side.

And one last on Lloyds, although you have highlighted in detail, how hopeful are you that industry will be able to take a price hike this season because one of the player continues to remain very, very aggressive on pricing and market share gains. So how hopeful are you that this season will be like normalized for the industry?

I think we'll continue to be watchful in the industry. You have mentioned about the hypercompetitiveness. And I think we will take slowly as it comes so I don't think we work in absolute. I think we work on relativity. So we will see as it comes.

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

As you highlighted, there has been an unprecedented increase in the prices across categories. So are you actually seeing an impact on the demand? Or are you also seeing any level of down trading because of the price inflation?

I think we have addressed this question initially. But I think we -- I think consumer demand and demand in general has been very resilient. As somebody asked whether volume growth looks very sort of normalized, which used to happen earlier. But I don't think it indicate we have seen certain precedented sort of increase in the commodity cost. Despite that, if there is a growth in the business and the demand, I think it augurs extremely well. I think as a business, we feel very enthused, and that's the only thing we can say. We have continued to be sort of very positive on how the businesses should pan out going forward. In general for the economy, not just for us at Havells.

Just last question from my side. Ex of Lloyds, would it be possible to share the channel mix across the general trade, modern trade and e-commerce?

No, we do not share these. Thank you.

The next question is from the line of Rahul Agarwal from InCred Capital.

Most questions got answered. Just one clarification on CapEx. My sense was we had a higher plan of about INR 500 crores each year going into this year and next year. Obviously, you've done lesser, INR 140 crores in first half, you're guiding for INR 300 crores, INR 350 crores this full year. What would be the revisions like essentially? And what are the areas where we have basically revised the CapEx? And related question to that was, any update on the AC plant, which we announced in February in the South India?

Actually, because of this COVID-related disruption in the first quarter, as you're aware, the things have been sort of delayed. So there is not much revision is that they got deferred. So I think it is very normal in this situation. On the AC plant also, I think there will be updates. We have tried for PLI as well. I think there will be update as we just mentioned earlier, at the end of the fourth quarter. So there has been no significant down revision in terms of our CapEx plan because these are the long-term investments, I think which we continue to do.

Right. Got it. And secondly, just to clarify, obviously, the base is quite high going into second half. And it's both on top line as well as margins. Last year, we did about 15.5% -- my sense is that's more of a function of a lot of discretionary costs were not actually incurred at that point of time. So going into second half of this year, you obviously take price hikes. Margins can get better on the contribution level. And then there is some amount of ad spend, which will obviously get incurred. But as Mr. Anil said on TV today morning that we're still looking at 14%, 14.5% for the full year. Is my understanding correct that we're looking for 14%, 14.5% for fiscal '22?

Look, what we can say -- I must say that I don't think I've given guidance on television. So I don't know whether how it was construed. But Rajiv...

Yes. So I think on the revenue side, we continue to remain positive. You see as the other things are concerned, as you said, discretionary costs we mentioned earlier on this call, there are always a good cost and bad cost. And I think there is no reason why the good cost should not come back. And I think businesses will not be looked from what happened in Q3 or Q4. These are the investment in the cost incurred for the long-term sustainable health of the business. So I think they will continue to be invested irrespective of what impact we could have immediately on a short-term margin. So I think you've already articulated that. But all we can say that we are very positive on the growth, and that's something I think that we will definitely target in that business.

Got it, sir. And good to see the working capital normalizing and the free cash flow coming back for Havells in first half. And all the best.

The next question is from the line of Rahul Gajare from Haitong.

Yes. My first question is on Lloyds. I remember in the first quarter, you had indicated that 27% of Lloyds business came from industrial and infra segment, which is when you had reported contribution margin of about 2%. Along with this, you had also indicated that you all were in ramp-up for other products like refrigerators and washing machine. So my question is, does this high share of 27% of B2B business, has anything to do with the operating performance that we've seen from Lloyds in this quarter? And is it possible you can share the similar number as to how much was infrastructure and industrial contribution for Lloyd's business? That's my first question.

So, Rahul, I don't think we have mentioned about Lloyd, Lloyd does not have this infra segment and all. So I think there is some confusion this was more for Havells. So I think that's not something for Lloyds stand-alone.

I thought you...

Industrial infra is not a very significant part of Lloyd...

I think this essentially was toward more from a B2B business. That is where you were indicating that 27% of business last quarter.

More for Havells, not for Lloyd. Not for Lloyd.

Fair enough. So that -- on the second question, on PLI. I remember you all had indicated earlier, you may not apply for PLI. But now that you've applied, which are the particular component that you are looking at manufacturing?

So that's something we have still applied we'll mention when we get the sort of endorsement from the regulatory authority. And we have never said that we will not reply. It was always there, it is under consideration. You see businesses. But yes, for finished good, since it is not available, we cannot do that. But there are certain sort of components which you already do internally, and we wanted to bring in-house for those we have applied. But I think the further details we will provide once we get that approval.

And the last question is on the container availability. Given the supply chain issues that the industry was facing, is the container availability issue behind? Or even now we are facing container availability as a significant problem?

Well, I think it continues to be a challenge. But as we said, we are fairly sort of integrated in-house. So for us, the incoming container situation is much more sort of leave now than earlier. On the export side, yes, there have been certain challenges, but those are not very meaningful for the business. So we would say that these are not very insurmountable issues for us.

The next question is from the line of Abhisek Banerjee from UBS.

A couple of questions from my side. The first one is with regards to ad spend, again, going back there. Just to understand, would you be able to share how ad spend effectiveness has changed over the last couple of years? I mean what has happened to the return on ad spend?

Ad spend effectiveness. So this is -- look, what we can claim is that ad spend is shifting more sort of digital than -- but we continue to present in all the medians because I don't know, it's difficult to say which is getting irrrelevant. So I think our ad spend is now getting more broad-based on the digital channels, on the e-commerce channel on the TV as well as you see the print media. Effectiveness, I think it continues to be there. But frankly, we do not like to track and claim what percentage would be there and there. And it is more of an investment for us than just a P&L item.

Okay, sir, understood. Now coming to the second part of the question. So what is, is there any discernible change in consumer behavior that you are seeing with regards to consumers being open to new categories because I did some store visits over the last couple of months. And I saw a lot of new categories in stores. Something like Roomba robot, which are [ prez ] rooms and all. So are you seeing anything of that? I mean is that a country-wide phenomenon? Or is it just limited to certain pockets of the country?

Look, consumer is much more aware than he has been earlier because of this exposure to see to the Internet and what he sees on the global basis. So I think as we continue to respect consumer in terms of his choices and how he wants to upgrade, wants to feel more comfortable and wants to pick up changes which will make it like easier and happier. So I think that this is something evolution which is happening. It's only improving. And there's where Havells is targeting as to how we can come closer to the consumers by putting more and more innovative sort of products for him.

Understood. And sir, you mentioned a 10% reliance on products which are not manufactured earlier which, I guess, are imported. Now that 10% is in terms of value?

Yes. It may be less than 10% as well. It could be something like 6%, 7%.

Ladies and gentlemen, there is a time concern, that was the last question for today. I now hand the conference over to Mr. Naveen Trivedi for closing comments.

Thank you, everyone, for participating in this call. We would like to thank the management of Havells India for giving us this opportunity. Anil, do you have any closing comments?

No, I think thank you, everybody, and seasons greetings to everybody on this call. Thank you.

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