Orient Electric Limited (ORIENTELEC) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Orient Electric Limited Q3 FY '22 Earnings Conference Call hosted by PhillipCapital India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Deepak Agarwal of PhillipCapital India Private Limited. Thank you, and over to you, sir.

Thanks. Good morning, everyone. On behalf of PhillipCapital I welcome you all to Orient Electric Limited Q3 FY '22 earning calls. Today, we have with us management represented by Mr. Rakesh Khanna, Managing Director and CEO; and Mr. Saibal Sengupta, Chief Financial Officer. Without taking much of time, I would like to hand over the floor to management for their opening remarks, post which we will open the floor for Q&A. Thank you, and over to you, management, for opening remarks. Thanks.

Thank you, Deepak. Good morning, everyone. My name is Rakesh Khanna. It's pleasure to be with all of you, and thank you all for joining us for our third quarter earnings call. I hope that all of you and your families are safe and healthy in these stressing times. Once again, we move with 3 sales in the past few weeks. Health and safety of our employees and all business partners continue to be our top priority. Our COVID response team has continued its surveillance, and we have extended support to all our employees with key doctor consultations, having oxygen concentrators on the standby, and made food delivery available to affected employees and their families. Rapid antigen test kits have been raised at the offices to act as the first line of testing and defense. Agile RT-PCR testing and isolation of COVID-positive associates and their immediate contacts was acted upon very strongly. I'm happy to share that severity of the virus is less, as no hospitalization has resulted from the employees and business partners, and neither has there been any impact on business continuity so far. Moreover, 100% vaccination and created awareness gives us the confidence that we will be able to come out of this quicker and stronger. We have also carried out community health care programs with hospital tie-ups for underprivileged vaccination drive and mask distribution. Coming to our overall performance. The third quarter of financial year '22 saw an overall resilient performance even though we continued to face challenges on multiple fronts. Third -- quarter 3 financial year '22, Orient Electric experienced healthy revenue momentum, growing by 9.7% year-on-year, against a much higher corresponding year-on-year base, which had served due to consumers extra buying against a pent up demand last year. We continue to strengthen our brand [ delays ] and consumer-centricity in all our offerings, which was validated by securing [ PT [ best brand and consumer-validated [ Superbrands worldwide ]. Following our promise of delivering smart products, we were recognized by Ministry of Power and [ NRE ] and bagged the prestigious national energy and conservation award 2021 under the category, most energy-efficient appliance of the year LED bulb for the 9-watts [indiscernible] LED bulb. Despite the looming concern of a third wave led by Omicron variant, the company's preparedness to counter production challenges and ensure business continuity helped in delivering overall revenue growth during this quarter. [indiscernible] are up and running in full capacities and in the sale, service and distribution staff, including warehouses and -- are all operating smoothly within the given restrictions and guidelines of the government. Considerably, good growth were reported across all business segments, except for appliances. This was impacted due to delayed winter and lackluster festival season, impacting the inventory rotation in the trade. The lighting and switchgear segment performed extremely well with double-digit growth during the quarter. The increase in commodity prices and our inability to pass the entire increase has kept margins under pressure until now. With the 70% share of the business, the ECD segment has been most severely impacted. We were largely able to compensate for the loss of margin in ECD segments by protecting the lighting and switchgear margins through smart component substitution, better selection, prebuying, inventory management and a favorable product mix. The ECD segment grew by 4.5% year-on-year in revenue and continued its positive momentum in Q3 financial year '22 despite many headwinds, including raw material inflationary pressure and the looming threat of the third COVID wave. Fans business had a good share uptake in the quarter. Our distribution expansion initiatives, supported by the increasing adoption of DMS, SFA and Orient Connect platforms are helping the reach expansion and more visibility of sales to support our value-selling proposition. Export sales were marginally impacted on account of geopolitical and economic emergencies in countries such as Sudan and Sri Lanka. In terms of appliances, this device subdued performance during the quarter. Water heaters and kitchen appliances were flattish in the quarter due to prebuying in quarter 2, late onset of the winter season and less buyers during the festival season. However, on a YTD basis, these categories have registered growth in the range of 50%. On the coolers front, which is a significant contributor in appliances business, channel partners were already stocked up on previous inventories. With the fear of another COVID wave looming, they refrain from making restocking decisions. Lighting and switchgear segment, on the other hand, registered a very strong high double-digit growth at [ 25%.] Lighting business had an impact the B2C segment, led by consumer luminaires and professional luminaires recorded encouraging growth, enjoying strong demand from home, small offices and showrooms. In the B2B segment, both private and government business inquiries have increased, especially with highways, railways and smart cities. Furthermore, the [indiscernible] business is showing very positive traction with new projects coming on the way. This is also helping the company to build its capabilities in this sector as well. Thus, the slowdown of the EESL business was more than compensated by [indiscernible] and B2B businesses, which also supported the margins. Switchgear business also recorded good growth in the quarter. The company's new range of switches, catering to mass premium segment is being very well received by channels and consumers alike. And volumes continue to pick up pace each month. Through new projects and new dealer appointments, we are placing particular focus on our B2B segment. The [indiscernible] is continuously engaging with the electrician community for advocacy and influence of [ contracts ]. On the expenses front, our other operating costs also saw an upward trend during quarter 3 financial year '22. As our operations resumed to normal pre-COVID levels, ancillary costs such as distribution, marketing and travel, which are essential to drive business growth, gained back into the system. Thus, our operating EBITDA decreased by 21% year-on-year on an unusually higher base, leading to 2-year CAGR of 9%. Looking at the working capital as of 31st December '21, it has increased by 16 days from the previous fiscal year levels. This was due to a planned buildup of inventory as readiness for upcoming seasons, quarter 4 financial year '22, coupled with slow moving cooler inventory. However, due to better working capital management, the working capital days has been on a decreasing trend from 52 days in quarter 1 financial year '22 to 34 days in quarter 3 financial year '22. In terms of liquidity, our net cash position improved quarter-on-quarter due to improved collections and better working capital management. Furthermore, there is general consensus is forming the third Omicron-based wave is likely to cause less damage to health care system. And this wave is expected to have milder economic impact than previous waves, making the marketplace be calmer around the sustainability of consumer demand. As I had mentioned in my earlier calls, through this entire COVID period, we have continued to invest in our long-term strategic plan, cost control measures, improved efficiency in production and have since [indiscernible] partnership, informed channel partners of extended credit, which will enable us to grow faster than the market. On this note, I now hand over back to the PhillipCapital team. Thank you very much, Deepak.

Okay. Thanks.

Mr. Agarwal your line is unmuted.

Thanks, [indiscernible]. I request you please open up for Q&A. Thanks.

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

I've got 2 questions. So the first question I have got is on the ECD margins. I think in your commentary you have indicated that the ECD margin were impacted by adverse product [indiscernible]. Could you highlight what the share of premium and decorative fans in your overall sales plan or in FY '21 last year? And what is the share of premium decorative fans in this particular quarter? And also, if you could highlight the difference in margin between entry-level fans and the premium fans? That is the first question.

[indiscernible] first of all, I want to clarify, I have said it a few times here also that there is no margin correlation between entry and premium fans. There would be many entry-level products, which we have higher margins than some of the premium products also. Because it's all dependent on the cost and the customers' ability to pay competitive pressures and our strategic positioning for a particular product. Having said that, there is not much of a difference between the mix of the entry level and the premium decorative. It largely remains on the similar side. While the premium has also grown, the entry level has also grown. It is just that the middle segment is getting a little squeezed as of now. That's the trend that we are seeing in the market. And therefore, the importance of every single segment remains to be same.

And could you give a share -- in terms of the share, how much is premium and decorated fans and overall fans?

Once again, Rahul, it is a little difficult. The way we count premium maybe is a little different than what you count premium and some of the peer group companies count premium. We count premium, which will be 10% of our top segment. You understand, some time back, there was a discussion that [ 3.5% ] was premium according to us. The prices having gone up by around 17%. We cannot call 3.5 percentage premium. Now we actually call more than 4,000 plus as our premium. So it's a continuously moving up segment. For us, what is important is how is our top 10% behaving? And what is the share in that particular segment that Orient is enjoying? We will continue to remain a dominant player in the topmost segment in the market which they also are clearly in that segment, more than 20% of the market share.

Right. So it's fair to say that 10% of your total sales will be your premium fans?

That's how we define the premium.

And the second question I've got is on your R&D. Could you specifically discuss R&D in some details, specifically highlighting given expenses that you have turned towards R&D in last year FY '21? Because I couldn't find any evidences that the company has done last year. And how is it that you have done in the first 9 months? And plans for the full year? Also, which are the areas on products which you're specifically targeting in terms of in terms of the R&D spending regularities?

Great. So let me, first of all, tell you what are we targeting in R&D. There would be a few confidential projects which I will not be able to discuss. Those we will share as and when they come out. But we will see the recent launch that we have announced of our [indiscernible], which is one of the unique patented design fans, which is for the first time, a fan without any [indiscernible]. It has been a dream for a lot of people to say, can we remove the [indiscernible] and the [indiscernible] from the fan and nobody has been able to achieve that in metal fans, to say the least, in aluminum because that's [indiscernible] material and cannot hold the blade unless the [ shank can be ] [indiscernible] there. So we have been able to crack that problem. It's a patented design, and we're very hopeful about how that will do. The second, there would be a focus on the fast-changing market requirement of power-efficient fans. Within this, the BLDC inverter series will continue to stay in focus. The redesigning of a lot of fans to get into the star rating and meet those requirements will be a lot of issues. There are new emerging taste of the consumer where the consumers are asking for different kind of design. So that will be another focus. Our focus will be in the TPW area where that particular segment shows a good growth. There are various pockets on which we are focusing. There are various level of priorities that have been set up, depending on where we are seeing the highest potential to gain ratio. In terms of cost. We do not -- as of now, we have not completely isolated and published the R&D spend because we also believe that R&D doesn't happen only in the labs. R&D is a common activity, which is together delivered by the entire team, which includes the manufacturing team, the marketing team, the sales team and the design team. So that's -- if I have answered your question on R&D.

So there are no specific numbers that we can...

No, we don't share this number. As of now, we don't share this number -- [indiscernible] it out.

In FY '20, you used to declare this number in the annual report. From '21, I couldn't find this number announcement that will be the [indiscernible]. Now just continuing on this -- continuing on this particular [indiscernible] on fans...

Mr. Rahul may I please request you to self-mute your line, as there a lot of disturbance from your audio.

So just continuing on this question. When is the star rating going to be effective? Is it July of this year for BLDC fans? Or can you throw some light on if there is any change in the P/E loss?

Currently, it stands at July, it is not for BLDC fans only. It is for all ceiling fans.

[Operator Instructions] The next question is from the line of Rahul Agarwal from InCred Capital.

Sir, 2 questions. Firstly, on the volume growth, if you could just give some color as in what really happened with fans and appliances [indiscernible] premiums Y-o-Y, Q-o-Q basis? Whatever you can help to understand volume, please?

Yes. So when we say that our growth has been 7% and -- 9.7% and the price increase has been in the range of 14%, 15%. You would -- it's a normal thing that the volume has been lower and the price has been higher. It's a simple math, right?

Yes, sure. Anything between fans and appliances of [indiscernible] premium you can specify please?

What would you like to be specified?

So let's say, fans volume growth Y-o-Y, what would that be?

You see, that becomes rather complex because isn't that every single segment would have grown and shrunk a little differently, every single product would have grown and shrunk differently. It will be fairly complex and wide metrics, which I will have to give you, wouldn't be possible in a small time but largely, on a weighted average, if you would see, this is how it is..

Got it, sir. And second question, so purely because of COVID wave 3, even January must be a problem to raise prices, right? And of course, the summer demand will now pick up as is they have subsided. So what is lined up for Feb? What are you thinking in terms of which product mainly you want to pass on? And will the market ready to accept these price hikes? Is the channel okay now, settled down because this COVID wave has again disrupted, right? So that's your thoughts on price hike in Feb.

So there is always a little risk to increasing the price hike, okay? But despite all this resistance, that the industry has been able to pass 15% to 20% price hike and the market has accepted. I'm not saying no to the fact that there is no price sensitivity with respect to demand, there is a little, and that's where we say that the volumes have not been as high, whereas the total value is high. And that part of price to volume will always remain. But nevertheless, we remain positive because of the total share of wallet and total share of the total household expenses, the categories where we play are not very large. And therefore, the price increase is not likely to deter customers as much. Although there is some resistance from the trade in terms of these channel inventory. And when the prices go up, which we prefer to first liquidate their channel inventory. And we keep hoping that the commodity will take a correction and the price may come down. So there is a certain lag, but we have been able to put through nearly 50% to 20% price increase during the year reasonably well. And we're confident the market understands that the commodity increase is the reality and these cost increases are the reality, it will happen. It will get accepted.

Sir, how much would you take in fourth quarter? How much price hike is pending? That's all. That's my last question.

So the gap that you are seeing in the margin is something that we would want to cover up and we would want to go back to the rightful margins. So anywhere between 4% to 6% is the kind of price increase, depending on different categories. And also, it depends on how much cost increase continues to happen. So that's the price increase that we are looking at.

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

Sir, first question on the demand side. Can you talk a little bit about how is the retail demand really panned out in the Q3 this year? I'm asking this question because as you said, you have a very high base volume growth this quarter has been on a decline price hike is more. I'm asking this question more from an angle of an inventory. Is the retail demand really weak at the ground level, which added channel -- more inventory to the channel? And given -- I understand there are only 15, 20 days to the January and the wave has not hit hard to anyone, barring 2 states enforcing lockdown on weekend. Has the sentiment really weakened? Or you think now channel is building up the inventory, the retail demand is coming back? Just first question on this color, please.

When I say that the demand has been a little less, you see one of the things that been comparing with last year, okay? The second, if we see comp last 2 years, the total CAGR has been fairly high. So if I go to pre-COVID level, the CAGR has been good. So the demand has not been bad. Demand has been good. It is just a comparison with what everybody was expecting in the kind of growth that we have got used to the very high growth. That was not there. The e-commerce team felt a little less because last year, the e-commerce growth was very high because everybody went only e-commerce route. And this time, people were out in the market. So while we saw better growth from the sale investment growth. So it's a mixed up thing, but the total if you've grown by close to 10% in the 2-year category is close to 45%, then it's an okay growth from the pre-COVID levels.

And any comment on the inventory side? The channel stocked up well? Or is it like high? Or is there a scope of further inventory that can be done by the company?

See, channel is both sentiments played on channel this time. On one side, the sentiment was that the channels saw the prices are going to be going up and channel always tries to stock up when the prices go up. On the second side, the second sentiment was playing that what if the next wave comes and if there are lockdowns? So there was a caution and there was an optimism. Both played, and I would say it kind of both neutralized each other, and I do not see a major -- any one major factor playing big. So this is a normal channel inventory. And in case of the wave 3 COVID effect, we should be able to see a good [ uptick ].

Sir, this is last question for myself. This is longer term. I agree you always maintained that standard something, safety can be maintained, absolutely. It's a very high, penetrated product, but you're still showing growth in that category by launching very innovative fans and gaining market share. What's the other category, sir? I mean if this is the first time we saw switches and switchgears coming back. But we know that switchgear is more of a new build. The driver is a new build market, which in some pockets are firing -- of the country. But generally, your long-term view, let's say, in the next year, next 1.5 to 2 years, do we see switches and switchgear really becoming big in the ECD segment? Big I mean, at least from a growth perspective? Apart from fans, which are the categories which we feel now it's the time to gain market, because already the players are there, so eventually, you have to grow by gaining the market more? So if you can comment a little bit on that. That's my last question.

So first of all, let me say, the switches and switchgear come in lighting and switchgear segment, not in ECD. Switches and switchgear will grow for us because they are not as much dependent on the market growth as much they are dependent on market share growth. This is very small, and the market is very large. And as we get into the proper range with our is presence, for what the brand demands, for what our product quality, et cetera, demands, we should be able to gain a respectable share in the market, and that will give us a very good growth. Same in ECD. We will be continuing to focus on the products that we have always said. Apart from fans, air coolers is the category that although has suffered for these 3 years, we still remain positive going forward. Given the kind of weather conditions in India, [ air coolers ] will continue to do well. Water heaters are still a high-growth category. They will continue to do well. We will continue to focus on these products.

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

Could you talk more about the lighting segment because we have seen even [indiscernible] report strong numbers. Maybe it has something to do with the changing competitive landscape. So your thoughts will be useful on this.

Sure. Well, of course, we are gaining market share, and that's because the competitive landscape is changing a little and we're getting opportunity to improve our shares that's definitely happening. Also, the consumer -- the consumption behavior is changing with lighting. Where the consumer was earlier using a bulb is now using a batten and where the consumer was earlier using a batten wants to now use downlighters and panels. So the overall lighting consumption behavior of the consumer is changing and changing fast. And put together, that all is helping us to -- for the market to grow. The B2B is also picking up, and we have been small in B2B, and we are gaining traction on that side, gaining a faster acceptance. So those are the reasons why we are growing well, and we're gaining shares.

The second question is if you could talk about the other categories in the ECD. And correct me if I'm wrong, I heard water heaters and the heating category improved by 30%. So correct me if I'm wrong.

So what water heaters and kitchen appliances. Heating appliances, they really suffer because the winter was delayed. And normally, these products they pick up and sell in the quarter 3. If the winters are delayed, the trade is hesitant and on top of it, with the COVID wave and all this anxieties related to it, the room heating suffered, but water heater has done well, kitchen appliances has done well.

Sure. Just the last question from my side. Given that the COVID has hit again. Are you seeing any momentum that is kind of slowing down because we are seeing deceleration in the growth, especially in the ECD segment? Is it more to do with the strong price hikes? And I'm trying analogy with -- from the 2-wheeler manufacturers who are talking about entry-level bikes not doing well or Samsung [ entering ] the entry-level refrigerators and washers actually declining. So any trend that you could throw? That will be useful.

See there is definitely some kind of headwind. But fortunately, as we are gaining the -- our presence and as we are gaining share, we're not feeling it as much. By and large, the sentiment is reasonably positive and optimistic today in the market. The trade feels that this particular COVID wave will not cause a damage. We are also seeing internationally, the governments are now accepting it more as a flu. And while U.K. has announced that this will no more be a compulsion, masks will not be a compulsion. So we're not seeing people emotionally suffering this time [indiscernible] suffer. Everybody has steadily passed through, although many people have been infected. So we're not finding that kind of a caution. People are reasonably optimistic. And as an organization, our current stand is that we will stay optimistic, and we believe the market will sustain growth. The rest, we will all see as time goes by.

The next question is from the line of [ Keyur ] [indiscernible] from ICCI Prudential Life Insurance.

Sir, first question is on the cost front. So I think the entire industry had seen a downward cost revision with cost savings last year. And now again, when things picked up again, and they have gone back to say almost normal levels. So last 2 quarters, when we see cost over on the overhead front, are we -- can we say that this is more of sustainable nature of cost, and we have reached that level? Or are there any other cost savings or cost escalation, which are yet to be seen? I mean because of seasonality, it may as a percentage of sales, have we reached more of sustainable level of cost?

By and large, yes, [ Keyur ]. More or less, most of the costs have come back. There are some costs as of now. For example, our marketing costs are not in full swing because every time, when we go in for spending the money, we look at what the environment is and if the environment is very healthy, we would spend. There is a careful watch on those ROIs of those spends. To some level, the cost will go up a little. They will be all productive costs, but I imagine, we are on the sustainable range now.

Okay. Understood. Understood. The second question, extension of previous 2 participants' questions. So when we talk about ECD, so other than fans, we talk about water heaters and coolers. Now kitchen appliance is a large category which has many subsegments. And when I -- I mean when I see our website, we have a lot of products listed there. So are we focusing all those products at the same time? Or right now, our focus remains the large categories like water heaters and coolers and that is why you will talk about them? I just want to understand when we talk about ECD, other than fans, which are our focus areas? Which may or may not -- I mean, due to time constraints, we may not be talking about it, but just which are the focus areas other than fan?

Great flavor, thank you. And your answer is hidden in the question itself. You see, for us, all the categories are important. Kitchen appliances are important, but kitchen appliances is a highly fragmented area, okay? There are very few market leaders. There's hardly any market leader that you can talk about barring some regional market leaders. And there are various reasons for it. Therefore, kitchen appliances' presence is good enough, and we are expanding and growing very well in kitchen appliances by ensuring that we are present. Coolers and water heaters are focus areas because that's where we are looking at gaining leadership positions, okay? So that's how I differentiate. When you ask me focus area, I say coolers and water heaters because that's where we're looking for leadership positions.

Okay. Understood. Sir, just last question, an update on the new CapEx which we announced from I think it is supposed to get commercialized by start of, say, Q1 FY '23. Sir, any update on that? And once that has started, so how it will contribute in the sense, is it increasing our capacity? So we are adding new products? Or is it we are -- from outsourcing to -- we are going inward and doing in-sourcing, and so it will contribute in terms of better gross margins or better margins at the operating level? I mean what is specific objective to reach out to some particular geography or to improve margins by in-sourcing? Just to understand how it will reflect, say, medium-term in our numbers.

Can I ask Saibal to take this question?

Yes. So [ Keyur ], we -- [indiscernible] project is not going to commercialize from first quarter of FY '23. It is going to start within the next few months. The commercialization of the project will happen at the end of FY '23 subject to price -- expected pricing of that. As far as the second part of your question is concerned. Yes, it is LED for the capacity expansion to cater to the future demand and to service the growth that is coming up. it is going back with fans that we have always mentioned. The project is going to start with fans which will be followed by all the other product lines.

Okay. Understood. I correct myself. Yes, Q1 FY '24, I meant. Okay.

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

My question was why it is kind of uncertain pieces. What I just wanted to ask is that if you look at the demand environment prior to COVID and during COVID, is it fair to say that the kind of growth, all the organized the leading players we have seen is more to do with the market share gain while the underlying demand was pretty much steady? It was kind of [indiscernible] prior to COVID. And that is now there in the base, the market share gains are there in the base. And hence, the incremental growth is looking a little weaker, while the demand continues to remain very much steady. Is that a fair assessment? I just wanted to understand your perspective on the same, sir?

Achal, good way of thinking. See, there are no syndicated data, and therefore, I cannot say with [ confirmity ] as to what is happening. So these are all governments, and we are all making the assessment call based on whatever best we can understand. And yes, the best understanding is that the larger players or the faster players have gained better shares, okay? Some of the smaller unorganized people have suffered, they have given up for various reasons. Was it their ability to match the cost? Was it their ability to plan? Was it their ability to sustain the various reasons of -- but some places have gained. If that is right, then it's a permanent gain that has come into these players. And as the market grows back, the gain will be maximum with these people. This is the hypothesis. I don't know to what extent it will be true. As we -- as the market opens up and as we get more and more information, which is more syndicated and reliable, we will validate that. But this is a hypothesis which is a reasonably good hypothesis.

Understood. Sir, my question -- another question was in terms of the urban and rural mix for us, how is it? And are you seeing a weakness, what we tend to read in media in the rural? Do you see in your product categories for your company as well?

It will be marginal. But you see -- you will have to see how we as an industry are more structured unlike an FMCG, which has direct reach in rural, most of the fan industry, the appliance industry, does not have a direct reach to very small towns and we go through alternate routes. Although if you go to the smallest village, you will find an Orient fan, which is -- it's always there. But our measurement always happens from the nearest town because nearest town supplies it to the small rural village. Currently, we are focusing on expanding the network and expanding the reach. Therefore, naturally, our share from the smaller towns is increasing at a much faster rate. Is it because of the demand? Or is it because that we are reaching out to those places a lot more? The visibility is not there with us. So difficult for us to say whether the rural is going down or up, but when we measure, to us, it appears that our rural share is going up more so because of our reach and expansion is happening in the smaller towns a lot more.

Understood. Would you be able to put a number to it, sir? is it like now 10%, 15% of the sales from rural? Or hard to put that number?

Hard to put that number, we don't define those numbers in terms of our reach, we don't have those numbers.

Got it. And if I may ask one more question, sir. With respect to the licenses...

I'm so sorry to interrupt may I please request you rejoin the queue your follow-up? [Operator Instructions] The next question is from the line of Nikunj Gala from Sundaram AMC.

Sir, just want to understand from the price increase, which we have taken till date in the range of 12% to 15% and still in Q4, we would be taking further price increase. And in July through if the starting gets implemented, there will be further increase in the range of 10% then the -- how do you see then demand panning out after July month, like considering such a sharp increase in the last 1 year? And especially on the replacement in mind that demand can be -- can get deferred if there is such a higher price increase?

Okay. So concern, Nikunj, can happen, but I personally don't think that's a huge deterrent. First because the product that we're talking specifically for instance, you are lessening, it's not a high discretionary product. And also, I always say that as a share of wallet, it's a very small share of wallet. In the total household spend, it's a fairly small household spend. So I don't think it's going to matter as much to the consumer. Small, yes, it will affect. But not going to be large and it should -- people will easily get accustomed to the new price levels. And secondly, when the new 5-star rating happens, the payback period is so quick that the increased cost gets justified very, very quickly. So I don't think it's going to be a deterrent for larger time. In short term, yes, psychologically impact, but logically, there is no reason to have an effect.

Okay, sure. And just secondly, say, in case like building a scenario where there is a decline in the commodity price. Will you be continuing the price increase, which you have taken until late? Or you will believe that in the competitive intensity search that you might have to give the benefits to the consumer also?

Again, good question, Nikunj. But lag always happens on both sides. If commodity goes up, it's always with a lag that we are able to pass. When the commodity comes down, there is also a lag because, understand, in the market, there is a high cost inventory sitting. And no company wants to put the dealers' inventory at loss. And therefore, even if the companies want, there is an inability to pass it on to the market very quickly. So there will be a lag on both sides.

Okay. So it's not like in the deflationary scenario, we will continue to enjoy the kind of increase which we have taken because that becomes a new normal from the consumer perspective. So there is no such a pricing power at industry level in that case?

It is generally dependent on the competitive scenario. When the prices go down, the companies cannot immediately pass on the benefit to the customers. There will be a lag also. Even if the companies want to do it, there will be a lag.

[Operator Instructions] The next question is from the line of Bhargav Buddhadev from Kotak Securities.

In the PPT, there is a mention that Orient has seen market share gain in South and East for France. Is it possible to highlight very briefly the efforts taken for this and whether this share gain is sustainable?

Yes, Bhargav. There have been very sustainable efforts which are going on in South and East. These are the low market, lower market shares for us, and therefore, naturally these are the areas where we would want to focus little strongly because the gains are better. So in South, for example, we have the whole advertising campaigns in vernacular language. We are going very, very local. The Connect project and the DMS project is going very strongly over there. there are very strong ground teams that have been placed over there. The dealer network expansion is going very fast. So there are many of these operating level efficiencies that have been built up, which are helping us to improve our presence on the ground very strongly. In East, in Orissa and Bihar, we are going with a completely new distribution practice of going with the redistribution strategy where we are going directly to the market, appointing our redistribution partners by the district and going very intensely into the distribution and the direct dealer strategy. So we are taking these actions, and we hope that we will gain significant position in these markets.

Lastly, is it possible to highlight how much of our receivables and creditors are covered under the financing and vendor financing scheme?

Pardon?

If you take that, Bhargav, the percentages which we had referred in the last quarter, that continues to remain, which is roughly about [ 45% ] of the finance system and about 50% plus at vendor finance is concerned. That percentage continues to remain. And as volumes go up, hopefully it will go up further.

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

Just 2 questions, sir. One, as we get into Q4, even Q4 of last year had a fairly high base, both in ECD as also lighting. So fair to assume that here again, we might continue with the volume regrowth? And maybe as we get into Q1 of next year or fiscal we get back to volume and value growth? Would that be a fair assessment? Or do you believe that channel restocking can be strong in Q4 to even get us some volume growth as well?

Ankur, difficult to say. I generally restrain myself from telling what will happen in quarter 4. We are still in January. We still have 2.5 months to go, we will see it together. But we're hopeful. We are hopeful, we are optimistic. We believe it will go well. We will see.

Okay. Okay, fair. And quickly, sir, on the export markets as well, if you could talk a little bit, I think that's about upwards of 10%, 15% of our total fan sales. So how is that shaping up? I think you did talk about some weakness there in a few markets. So if you could talk about the export market, where do you see that kind of, say, 2, 3 years down as an overall fan sales?

If you said that 10%, I would make a correction there. And in terms of the markets, well Sudan, we all know, it's a large fan market, and it has got hit seriously through the political and economic turmoil there. Sri Lanka is another concern. Sri Lanka on the on the verge of bankruptcy, as has been announced, one has to be extremely careful in terms of ensuring that the payments, et cetera, are secured. And of course, in such situation, the exports really take a beating. Having said that, the rest of the world is going well and there are new opportunities which are coming and we are continuously growing in those opportunities. So it's a balanced view. There is a clear headwind from a few countries, but at the same time, there are opportunities coming from other places.

And any targets in mind, how much you would want to have exports as overall sales in fans longer term?

Yes. Our export ambitions are big. But currently, I would not want to make statements about that. Yes, we would want to stay in the range of 10% and grow a little better. But opportunities are vague and we are working on them.

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

Sir, just wanted to understand the breakup between multiple brands. Obviously, Orient is from other brands. But excluding that De'Longhi & Kenwood and Braun. These are the key other brands that we are helping. So what is the revenue contribution from these brands? That is question one. And question two is now with the star rating coming in from July. So obviously, there will be a lot of inventory mismatch and inventory goods the trade may not be willing to upload at that point of time. And again, for the organized tests like us, it will be a good opportunity to gain significant market share from smaller store and organized players. So how is the company prepared for that? And can you share what are the plans to innovate, gain significant share from that event? That's it from my side.

Great. First thing, let me tell you about De'Longhi & Kenwood and Braun. This is a strategic partnership. All these products are very, very premium products while they're globally the leaders in their segments. In India -- India still has to gain sufficient momentum and appreciation for such high-quality products at these price points. So the market is still small. But both us and the De'Longhi Group are fairly clear that this is the time to enter India. And as the Indian market matures up these kind of products, we should be having significant relevance in this particular segment. The point to remember is globally, these products are market leaders. And therefore, as the market grows in these categories, we should grow very well. Currently, these are fairly small. And for us, it is more of ensuring that these brands are well represented and present in the country. The second point that you talked about, is about how we will gain -- how the complexity of inventory happens when the changeover happens. It's a very valid point, and we are planning very closely on this. You are right, with the players who will manage it well, we'll tend to gain better than some other players. And during this changeover, it's a high focus, as I said earlier also during the day. But one of the focus areas we have for the R&D team is how to reconstruct every fan to match into the new regime and continue to the best possible star rating. So you are right, we have to plan on the inventory very carefully, not only ours but also our trade partners.

Okay. Okay. Sir, just a follow-up, just hypothetically, if we have to...

Excuse me, [indiscernible]...

No, no. So it's part of that question only. So if you help us divide our own portfolio currently, how will you say on the -- in the star-based rating system comes. So where do we stand on that? So do we -- whether some of our portfolio get affected for largely our portfolio will require no change as such? Yes, that's it for my side.

Good. Aniruddha, a fairly large part of the portfolio of all the fans will require limited change, but the change is not very large, okay? It's about managing the specifications of the fans a little better so that they qualify for the star rating. So all the -- and that's what we are working on. All the fans are undergoing minor adjustments in their specifications to match the star rating. So most of our portfolio will be compliant with the star rating.

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

Sir, first question is you talked about rural and urban market. So if you can just touch on the distribution side in terms of our expansion in the rural, at what pace we are adding touch points in the rural? And what is the mix right now of rural versus urban for us? Second question on the distribution side is in terms of e-commerce versus general trade. What is the mix there? And how we are seeing earlier some divergent trends in distribution on general trade versus e-commerce. So if you can touch upon the sales trends on e-commerce versus general trade. So those are the 2 questions from my side.

Let me first answer the e-commerce versus general trade. E-commerce mostly general trade for different categories is anywhere between 10% to 20%, depending on different categories that we're talking, okay? Some of the categories is very, very small. To tell you, for example, in the lighting, it's very, very small. It's kind of more less negligible. One of the reasons is that we have cautiously taken the call as of now given the kind of product and the challenges that we have, that we would rather focus on the trade and we are gaining very good traction. So given the limitations, we are focusing there. But when it comes to ECD, we are anywhere close to 10% to 20% depending on different kind of product categories and also it depends on different months. There are [ affected ] months when suddenly the e-commerce goes up and some months when the e-commerce percentage is less than the 3%, which is high. But by and large, [indiscernible]. Then you asked about the expansion in terms of the rural expansion. We have our numbers. But as I said, we're not really talking about the pension in the e-com in the rural areas. Our expansion is a little differently defined. Our expansion is defined on this quality of expansion that we are doing. We are cutting down at a lot of places and we are expanding in a lot of places. You see, what we're doing is to what extent are we connected with the retailers now? That's the bigger question rather than, how will retailers have our material. To tell you how many retailers have a material? 125,000 retailers. We don't even have that kind of a target to be at 125,000 retailers because there is no way to measure that. However, our direct feeds and direct influence to the retailers have to significantly go up. And those are some of the internal targets that we are not sharing in the public domain for the reason of competitive advantage. We will be -- I can only share with you that there is DMS, SFA and Orient Connect are our 3 platforms. A combination of them is helping us to improve our direct reach, visibility and influence with the retailer at a very high pace.

That's helpful. Sir, just if I can squeeze one last question, sir. In terms of...

So sorry to interrupt. But due to time constraint, we'll have to limit to one question only now. Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Deepak Agarwal for closing comments. Over to you, sir.

Thanks. May I request management to make any closing comments to the call.

Thank you so much, Deepak, and thank you all the participants. I welcome and wish all of you being safe. And we're sorry, we'll not be able to take all your questions, but we will be very happy to answer your questions. You can be sending us the questions. We can [indiscernible] directly, and we will ensure that all your questions are well answered. Thank you so much once again for your continued interest, and thank you for PhillipCapital team, especially you Deepak, for organizing this call. Thank you.

Thanks, [ Rakesh ], and thanks, everyone for joining us all, And thanks, [ Rakesh ] for the opportunity to host this call. Thank you so much. We may end the call.

Thank you.

Thank you very much. On behalf of PhillipCapital India Private Limited, we conclude today's conference. Thank you for joining, you may now disconnect your lines.