TTK Prestige Limited (517506) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the TTK Prestige Limited Q2 FY '21 Earnings Conference Call hosted by Ambit Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Dhruv Jain from Ambit Capital. Thank you, and over to you, sir.

Thank you. Welcome to TTK Prestige's 2Q FY '22 earnings call. From the management side today, we have with us Mr. T. T. Jagannathan, the Chairman of the company; Mr. Chandru Kalro, Managing Director; Mr. K. Shankaran, the Whole-time Director; and Mr. R. Saranyan, the CFO of the company. Thank you, sir, and over to you for your opening remarks.

Good afternoon, everybody, and thank you for coming. We've had, obviously, a blockbuster quarter, as you would have seen the results by now. This has been our best ever quarter. It's been best in many, many ways. First thing is that we've had a stupendous back volume growth. We've had a good part of client growth, as you've seen under some very, very challenging circumstances of raw material price increases. And in spite of that, we've been able to actually expand our margin base, and we are well placed for the season retail as currently are speaking. And overall, every single parameter in terms of all our core categories have grown excellently. And so now we await your questions, whatever may be there.

We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Ravi Swaminathan from Spark Capital.

My first question is with respect to, say, the value and volume breakup. I know multiple products are there. Roughly, if you can do a value/volume breakup or to put it in perspective, all those kind of price increase that we would have taken on a percentage basis during the quarter.

So we've given you some value breakup, as you have seen in our release that you have seen. Anything more than that would not be favorable to give in terms of competition and other pressures. But to your second question on what kind of price increases we have taken, we have taken a price increase in Q2 in July, which was between 5% and 8%. And there must be a little bit of a lag effect on that because there were old stocks, as you know, with the old MRPs. So some of it came in the last quarter and some of it did not come.

Okay. Okay. And in the presentation that you had given to the BSE website, so basically you talked about, in the going-forward section, that there has been some amount of festive stocking, which has happened and the complexities, which are there. So if you can give your views on whether there will be a growth period given the high base, which was established towards FY '21. Would we see growth over that into FY '22, if you can give your views on that?

You have absolutely hit the nail on the head. You're right. In the first half of this year, there is a base effect, which is a lower base effect as compared to last year. In the second half, before the normal year last year in the second half. And therefore, while we are not looking at substantial growth, we are certainly looking at growth and healthy growth.

The next question is from the line of Resha Mehta from GreenEdge Wealth Services.

Congrats for a good set of numbers. My first question is on the sales growth numbers, right? So if you look at the 2-year CAGR for the sales growth for H1, it comes at around 8%. So looking ahead at the festive season, what kind of rate is our aspiration for the full financial year? And for the years going ahead, assuming that there will be no COVID related third wave or disruption ahead?

First, we don't give a guidance for the year, as you know. But when I say healthy growth rate, we are obviously looking at double-digit plus in terms of growth rates for the year as well. But I don't want to give you a guidance.

Fair. My second question is in terms of our working capital. So if we look at our working capital to net sales, that's somewhere around 25%. So just wanted to understand, do we use tools like dealer financing or vendor bill discounting, et cetera, to bring down our working capital? The reason I'm asking this is that if we look at our peers in South, right, so Stove Kraft has around 10% working capital to next year. And so has Butterfly improved drastically over the last 1 year because of these channel financing tools. So just wanted to understand that.

Do you -- that after seeing INR 500 crores in the bank, early 5%. Why would I want to go hit financing and pay 12%? Does that make sense to you?

Sorry, I couldn't hear you. If you could repeat.

The point being made is you know there's a lot of cash that we are holding at this point in time. And therefore, we have actually decided to plow it back into the business with a view of getting much better returns on it rather than the treasury income that we would have otherwise got from it. Coming to the channel finance tools, we have got channel finance tools that are in place, but we preferred not to bring it into play at this point in time. Going forward, we will bring it into play ultimately. We've also used our capital to buy more raw materials so that we are more protected with respect to the thing, cost increases as well. So I it would be -- even after whatever working capital you are seeing, you are seeing a very, very healthy return on that capital in spite of that. And comparing TTK Prestige to Butterfly Stove Kraft, they are both companies which are in debt. We have no debt.

Right, right. So, okay -- so if I were to ask this the other way, is there any scope for further reduction in our working capital?

There is, certainly. We choose not to.

The next question is from the line of Sameer Gupta from IIFL.

Just taking it further from the previous participant. So while I also noticed that the first half performance versus 2 years ago is a growth of 8%, I also heard you on the TV -- the CNBC TV that you have taken around 15% kind of price hike this year. So that implies that on a 2-year basis, volumes are actually flat on a first half basis. So just 1 question here, that overall volume growth on a normal base of 2 years back, if it is flat, I would assume that the recovery is still not complete and there is further scope to recover from here? Or this is a normal scenario now with all the price increases taken, there is a volume that has also been coming in the consumer?

So first of all, it is not true that the volumes are flat. There has been a significant growth in volumes in many of our core categories. That is point #1. Point #2, the 15% does not have -- it's not a blanket 15% across the board. It is between 8% or 6% to 8% and 15%. Third thing is all the price increases may not have come in the first half because of the inventory that we would have carried and there is a lag effect on that. To cut the long story short, if your concern is are we -- about the volumes of pre-COVID, yes we have very well close to pre-COVID volumes as we speak. Need no further to tell you, yes.

Great, sir. So just a follow-up to that. Could you break this into components of growth from new geographies and distribution versus existing distribution?

I don't think we would like to give further details than that because it is sensitive to competition. It's just safe for you to know that almost every single geography for us has been growing. In fact, growing well. There has been an all-round growth for all channels also.

Okay, sir. So another follow-up, and this is not related to your company specifically. But in general, in the high inflationary environment, the unorganized or the smaller players face working capital challenges. So my only concern is that this may be a transient issue. And as inflation goes back to a more normal level, we might again feed some share to these smaller players.

Well, if it was that simple, then they would have gained share by now, isn't it? We have still maintained leadership for so many years. The point is very simple. Our mantra for leadership is providing a much better value equation to the customer through innovations, through any of the other kind of value additions that we provide in our products. And that is the strategy we will follow going forward. We are an organized player. Typically, we do products. That is not the way we operate.

Fair enough, sir. I'll move on to the second question, if I may. So gross margin, when I look at it, there has been a steady rise in inflation in most of the commodities since third quarter of FY '20 -- '21. And yet our -- we have seen a sharp gross margin contraction sequentially only in this quarter versus no major impact in the previous 2 quarters. So just wanted to understand, is it old inventory that we were carrying in the past 2 quarters? Is the quantum of price hikes lower than the inflation this quarter? So just wanted to understand this aspect in a more granular detail.

Okay. First, let me tell you, you look at the first half of last year and then first half of this year, it is almost identical. So a quarter-to-quarter movement is not the best way to look at it because of exactly what you said, which is the old inventory is lying, new inventories lying lag effects of price increases, et cetera. So if you look at the first half of last year and the first half of this year, you are looking at almost identical margins.

Mr. Gupta, may we request that you return to the question queue for follow-questions. The next question is from the line of Achal Lohade from JM Financial.

Yes. Sir, first question is with respect to the -- our in-cost inflation. We have seen that the aluminum prices particularly have actually gone up in the last month or 45 days. So my question is, how much price increase more to be done in order to maintain or protect margin, sir?

I will answer this in a different way. We are committed to protecting our margins or coming as close to it for the full year going forward in spite of all these price increases or cost increases.

When you say...

These days will depend upon what cost -- we don't know how much cost increase it's going to be. If you can guarantee me there's going to be no more cost increases, then I can get that price for you.

Okay. Yes. So when you say the current margin, you mean the first half margin or the second quarter margin, sir?

Last year's margin. I have always said, please evaluate us on an annual basis. A quarter-to-quarter is very difficult and has a lot of things, other things. So our plan is to protect our annual margins to the extent possible. And we've also stated that we would like to be within the band, and I think we are well on course to be within that band.

Right. Just a question with respect to your comment in the PPT with respect to the channel inventory. So is it a comment pertaining to the industry or the company's channel inventory, which is [ stocked ]?

Look, last year, Diwali was 14th of November. This year, Diwali is 4th of November. Our sell-in to the channel preseason would have happened more in the fourth -- third quarter of last year. And this year, that has got happened in the second quarter of this year. That is precisely what their line is trying to tell you because that is how markets work. So that's an industry-wide phenomenon is what we think. But we are speaking for ourselves here, right? I don't think we should speak for other people.

Fair point, sir. And in terms of the competitive intensity, have you seen it now coming back? Or what happened in the last 18 months is kind of continuing even now?

Where did it go? What is the competitive intensity? It was always there. I don't think it has gone away. The point is that if you see our margins, our profitability, our growth rates. It tells you what kind of branding and what kind of brand power we enjoy with the customers. I think that is pretty evident.

Absolutely, absolutely. And just last question, sir, if I may, with respect to the new categories in terms of the cleaning solutions and the other new categories, where are we? And how the scale up has been?

They are going as per plan only. There is a distribution expansion plan that is happening. Albeit, in some areas last year there was a base effect because some of those categories had gone up dramatically last year given the COVID had just hit us. So those ups and downs are there. But otherwise, we are well on course.

The next question is from the line of Bharat Chhoda from ICICI Securities.

Congrats on a good set of numbers. I had a query regarding our capacity. So what is our current cookware capacity, sir, if you can share that?

So I think we would have released a press release to the exchange in the last quarter. We have actually commissioned our new spread line in Gujarat factory, which takes our capacity from roughly -- by roughly about 60% from where it was, 60%, 70% of where it was. And I'm also happy to tell you that we are presently utilizing all of it.

And sir, on the cooker capacity?

Cooker capacity, we have not added anything significant, though I think we have added shifts and therefore, our production is up. I mean just to tell you, the amount of production that we've had more than last year is almost 70% more than last year in terms of production, active production recorded.

In cookers, we are able to produce profit in sales.

The next question is from the line of Disha Sheth from Anvil Shares & Stock Broking.

Sir, congratulations on a good set of numbers. Sir, wanted to check, we haven't -- other expenses are lower quarter-on-quarter. So wanted to check, is this the trend that will continue because of the operating leverage we are getting? Or we have controlled certain expenses because of higher raw material and it might spike up in coming quarters.

There is only a one percentage point drop, and that could be due to many things, really. I mean, if you look at our other expenses, it's 24.3%, 23.6%, not very different. And if you look at the half, it's 24% and 24.1%. So there's no real significant change.

Okay. Okay. And sir, on cooker especially, how has the demand been? And are we gaining market share since we are growing at a very good rate in the company?

Well, I'm sure that the category didn't grow by the percentage growth that we have shown. So we must have got share from somewhere.

And how is the market...

Yes.

Okay. And sir, can you repeat the volume and value growth for the quarter, I just missed that.

No, I did not give any volume and value growth. All I said was that if you see whatever we have given in our release, that is about the best we can disclose at this point in time. And what we have released is that for the quarter, we have grown by 44% in value for pressure cookers.

Okay. Okay. Okay, sir. That's it from my -- and sir, on over 5 years basis, what is our sales growth target since introducing new products?

We have already declared our stated commitment to reach INR 5,000 crores by FY '25 through organic and inorganic growth, and we stand committed to that number.

Okay. And then the margins in the range of 15% to 18%?

15% to 16.5% is what I thought we said. So I don't want to say. 18%. But if we can do 18%, why not?

The next question is from the line of Sanjaya Satapathy from Ampersand.

Yes. Sir, congratulations on a fantastic set of results. And you have managed to protect your margin despite commodity pressure. So is this some kind of a sign of industry discipline and reducing competitive intensity?

No, I don't think it's a combination of various factors. You see there are a lot of things that we have done internally to make sure the efficiencies show up. I just said that our manufacturing has produced so much more than last year, which means that my cost there would have come down. There are a lot of efficiencies that we have improved aside of the fact that we've taken timely pricing decisions and timely promotion decisions, which has resulted in what you see. Competitive pressures, I don't think have reduced. Competition pressures will be there always. It's not some industry where there is no competition. But I'm sure with a brand like ours, and the brand that -- the respect that it commands in the market, we will be in a position to continue doing this.

Understood. And sir, you have also talked about a slight slowing of e-commerce business compared in terms of growth rate compared to previous quarters. Is there anything to read there? Or it is just a...

Nothing significant to read there, except that we are just reminding you that the second half of last year was a significant growth over the previous year. Because we tend to think that this -- last year was a COVID year and therefore, it was a bad year, and therefore, if we have grown against that so what? The point is that the second half of last year was a significant growth. In fact, if you look at our last -- 9 months of last year, we had grown by 20% over the previous year. For the first quarter, which was [ wash-up ]. What we are seeing in this is that given that the base effect of the first half was different from the base effect of the second half, we don't want you to think that we would grow by a similar amount of percentage that you have seen in the first half because the first half growth has come on that base effect. There is absolutely no gloom and doom that we are predicting in our release in terms of the market, it's demand and our ability to satisfy that demand.

Okay. And sir, if I can just ask the last question. Your [ superficial ] target of almost doubling your sales in 3 years' time over current year. So which is pretty commendable compared to what you have done in the past. So if you can just help us understand, like, will it -- how much will it be driven by your market share gain in the existing products? And how much will it be because of initiatives like new products as well as exports, et cetera?

See, even when we released our statement on our vision for FY '25 at INR 5,000 crores, if you recall, we have told you that it's a combination of various factors. We have split it into domestic sales, new verticals, exports and inorganic opportunities. So it is not that the present domestic sale is doubling. It's a combination of various factors. And we are at work in all of those areas, and we are still staying committed to that number. So it's a combination. There are acquisitions that we are always considering on our side, which we have been talking to you. We haven't reported back to you because we don't have anything right now to report in concrete terms. But obviously, with the kind of cash we hold and the kind of commitment we've made to that growth, we are actively considering many options.

Understood. And hopefully, the kind of run rate that you are looking for the next 3 years, we will see in a normalized second half of this year.

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

Yes. And congrats for a really good set of numbers. Sir, in terms of the price hikes across the categories, are our price hikes in line with the industry? Or have you raised prices higher than the industry?

Each company is different. Each company's own internals are different. Let me tell you, we, as a company, have followed a cost-plus philosophy and always said that we must maximize value delivered to the customer. If I -- I never take opportunistic price increases, and that is something we have maintained. Others have probably also been having different times at which we have taken price increases we have taken on the basis of what our returns were and what our costs were. That's the philosophy we follow. And I believe by following that, the customer will also see the value in Prestige when he buys a Prestige product.

Okay. Okay. Sure, sir. Sir, and in terms of -- as you indicated initially that the company would be using the excess cash to improve the margin, which basically, if we increase the inventory levels, then obviously, margin may increase, but will it result in higher inventory days and in turn, impact asset terms and overall return ratios. So on one point -- and even after adjusting for inventory uses, still a lot of cash will be still left on the books. So is there any further plan on that additional cash?

Just to the previous question I had answered, that there are several proposals that are under our consideration as far as any acquisitions or inorganic opportunities that might be there. And that is something we are constantly looking for, and we are very careful because this -- just because we have capital, we cannot go and acquire a company. We need to see what our future is, what its future is, et cetera. So there are several such proposals on the table, number one. Number two, coming back to the inventory issue. If you look at the way the money is deployed, it is not deployed so much in finished goods as it's deployed in raw materials for obvious reasons. And that is something you can take up and down at will, depending on which way the market is going in terms of commodity costs.

Okay. Okay. And our internal take in terms of inflation because obviously, it's difficult to -- it has literally been a inflation show post 15th of September, we are -- everybody is, in a way, experiencing. But what would be our internal expectation in terms of inflationary pressures, whether it's -- it will continue for some 2, 3 months period issue or we are expecting it to be a prolonged -- more than 1 year kind of issue?

If you know a good one, probably just please recommend. I can tell you.

No, no, no. So I agree, it is very difficult to answer. But that's why what we are seeing other consumer companies are also, they are taking calibrated pricing because they are fearful that if they take too much of price hike and then if suddenly, the inflation cycle goes down, then again, they are caught on a wrong foot, so...

You are absolutely right. It is important to be calibrated in our approach. I also told you we are a cost-plus kind of company. So we have to calibrate these things and also make sure that under no circumstances, we try and threaten the demand because it's never inelastic to price increases. Having said that, as I said, we are committed to be in a particular band for our margins, and that's something we are well on course to.

We don't increase prices expecting future cost decreases.

Okay. So let's say we are seeing an inflation, which has never seen -- probably, we had seen similar inflationary shock in maybe 2009. But almost 20 years, we have seen this kind of inflation for the first time. So probably, if the inflation can be so high, again, the correction in inflation can also be pretty steep. So in that case also, we will not correct the prices then.

No, no. Remember, when we said corrected inflection, it is future. In other words, the cost increases or price increases will not be 15%, 25%. This will not be negative. But instead it comes down, prices don't come down. The price increase assumption.

In any case, I do think that we are not in a position to comment today. There is an energy cost, which is keeping on going up. And many of our raw materials, energy is a big part of that cost. And unless we see some correction in the energy cost, you're not looking at anything coming down, right? Chairman said, maybe the increases will not happen at that same rate, but maybe it will not come down. From our side, we are calibrated enough so that we do not have a situation where we have to reduce prices. We are not there.

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

Saying at the outset, congratulations for a great set of numbers. My first question is if you could help us with your market share in cookers, cook wares, mixer, grinders and some of the other key categories like induction cooktops.

M. I'll not give you the market share numbers. One, because there's a lag within market share numbers by the time they arrive, and the lag is at least a quarter away. But I can tell you that we are currently market leaders in pressure cookers, cookware, induction cooktops, in value-added gas stoves, in rice cookers, and we are the #3 player in mixer grinders.

Perfect. So mixer-grinder is an area where you have been highlighting that you're not amongst the leaders and...

We are #6, 2 years ago. We were #6, 2 years ago. We are at #3 position today.

Sure. But in your view, what are the efforts that you are taking to increase your market share? Because some of the newer players have been using the online channel very extensively, so if you could just throw more light and speak about the mixer-grinder as a category specifically.

So first of all, in the online space, we are #2 brand. We are not #3 brand. So we are very well entrenched in the online space. Our idea of getting market share is very simple, which is what the Prestige brand does, which is, to us, by providing innovative products and solutions to customers. And our product pipeline is always getting populated with newer and newer innovations, and we are sure that very soon we will be talking and threatening the leaders in this category.

My second question is on the channel mix because in the previous call, you had mentioned that there is a disproportionate increase in online mix because of the restrictions. Could you help us with the channel mix and what, in your view, is a longer-term sustainable mix that you are looking at?

Yes, as a strategy, we have always said that we would like to be maintaining our presence in all kinds of channels, and we do not want to go get into one particular type of channel only. We are the brand that's well distributed across the country. We have presence in almost every single type of channel, and we would like to keep it that way. And we have seen that as a matter of fact, when the lockdowns were there, online, of course, disproportionately goes up. And then it tends to even out and the other channels come back as we have seen in Q2 and even now in Q3 in the month of October, where people are coming out to shop in the offline space. So we believe that in our kind of category, between 18% and 22% is the stable online and the rest will be offline.

Sure. What was the online contribution in the last quarter?

Around 18% to 20%, if I'm right, around that.

Okay. Sure. And what percentage would be by our exclusive stores?

Around 16% to 17%.

Okay. Just last question. If you could talk about the newer products that you launched in the previous quarter, specifically the Svachh range of gas stoves. What -- how is the response? And what kind of growth we are seeing in that category?

See, we have done a calibrated launch market by market. It's a new product. And so far, the response has been overwhelming, if you ask me. We are not able to supply enough. And I believe that it is an absolute disruptor in that category because there's no one else who's got that kind of a feature and it's so relevant to any user. So we are having great hopes on this, and we believe that we will be able to gather a much better market share with this kind of platform. You are aware that in pressure cookers, when we launched Svachh pressure cookers, now we have moved every single model of ours to the Svachh platform. We're trying to do something similar to the gas stove platform.

[Operator Instructions] The next question is from the line of Gautami Desai from Chanakya Capital Services.

Sir, I've read in one of your past con call transcripts that you had said that you have a 35% market share in cookware, where the addressable market is INR 1,400 crores and nonstick is INR 900 and stainless steel is INR 300. Sir, I was a little confused there. So when you would say that the addressable market of cookware means -- what do you consider in that? And when you say, like, say nonstick is INR 900 crores, does it mean that the total nonstick vessels that are sold in India, that everything in India organized, plus organized put together is INR 900 crores. Can you throw some light, sir, on this?

I don't know which con call you are referring to first.

Your, I think, last one or last one before that.

Now the addressable means what -- cookware is -- any stainless steel is also a cookware.

Pots, grill is a cookware.

Anything is cookware. What we are discussing is the value-added cookware, the nonstick cookware. And yes, our estimate is between INR 900 crores and INR 1,000 crores as per whatever the last research that was available to us. And we are also kind of doing retail market share tracking and that is how we have stated those market shares when we did state them.

So sir, when you say 35% market share, if you are right when you say that, it can be so much as also cookware. [Foreign Language] all that put together, your share is 35%?

You are talking about nonstick cookware, if I am correct. The claim is not nonstick, right?

You had said that cookware a 35% market share, or maybe what you mean is your nonstick, plus stainless steel, plus your other value-added that, all put together could be INR 1,400 crores?

Yes, that is correct.

Okay. And that is organized plus organized sold in India, right, in your products?

Yes, yes.

Okay. And sir, one more thing. I'm not trying to look at any number of market share or anything like that, but I'm just trying to understand...

You are trying to confuse me with my numbers, that's what I'll tell you. I really think you're [ prancing ] about.

Sorry, sir. Yes. And sir, now obviously, I'm not looking at any number on the market share. But I'm just trying to understand that when you go into newer products like the mixers and grinders or other appliances like cleaning products and on. And sir, when we see like large full paid ads someone like [ Cantor ] anybody who, like that suddenly comes up with all those -- a lot of those SKUs in which you are there, you're trying to be there. And then it's kind of -- it looks like a lower entry barrier to mean low capital investment where a lot of manufacturing is outsourced. So sir, it will really help us in -- if you tell us that what are the kind of entry barriers that you are trying to pose to your competitors and...

Okay. Shall I tell you that the pressure cooker and cookware industry is at least 50, 60 years old?

Yes, right.

You'll agree?

Yes.

And it is not difficult to make a pressure cooker and not difficult to make a nonstick cookware.

Right.

Even if I have 30%, 35% market share in any of these categories, do you think after 60 years to maintain 35%, does it mean something?

Yes, sir.

If I had 2% market share, then I agree with you that there is an entry barrier. No entry barrier. There is an entry barrier, which is brand, which is innovation, which is customer relationships, which is the way we are in a position to offer value to our customers after sales service. So many of these things add up. Just making a product and putting a full paid ad does not mean that you can get into the market. Now a retailer, when he puts his own in-store brand, does it take over from the brand -- let it be any category. It does not happen because customers buy brand, and that's precisely why brand is this.

The next question is from the line of Koundinya Nimmagadda from JM Financial.

Sorry for hopping on this second, sir. Can you just help us understand, there's a price rate that we took in the [indiscernible], too. I mean, when did we take it for each of the categories till date?

So we have taken around 5% to 8% price hike in July of this year, in this financial year. And that price increase has been only partially kicking in into the last quarter of which we have just completed.

Okay. Understood.

Again, I will tell you there are significant volume growth, if that is what you are trying to extrapolate. There are significant volume growth over last year and the pre-COVID year.

Sir, can you help us understand the gross categories in this 5% to 8%? I guess it would be higher for appliances. So just trying to understand how it...

Yes, you are absolutely right. The 5% was on cookers and cookware, and the 8% to 9% was on appliance.

Understood. Sir. And then the next question is on the demand momentum from your numbers. I'm talking about the some of the numbers reported by your peers. It looks like the demand momentum is good, but just trying to understand with the sort of price hikes that we are taking, and do you think that by momentum is such the volume growth is going to happen here on? So what is your sense on that, on the possibility of incremental price hikes to pass on the inflation and on the demand side?

We have stated to you already that we are going to maintain our margins to the extent and it looks like we are going to be able to do that. Now taking a call on what the commodity costs are going to be, I think it's difficult at this point in time. Hopefully, they will abate. And hopefully, we will not have to do too much more. But if it is necessary, we will pass on and the brand is well in its position to do that. Now coming back to where this industry is, I mean, if you are looking at a price hike of 7% or 8%, like as your 5% in a pressure cooker, you're talking about INR 100 at the end cost that the customer is going to pay. Given that what is the share of wallet of this type of product, I don't think it is something that will break the demand of the customer. So I don't think it's going to be debilitating. I don't think it's going to derail anything. You must, however, remember that there is a base effect of last year second half versus first half last year. That is what we have stated in our release.

Understood. Sir, my second question is on the distribution side. Can you quantify our current distribution reach? And also, I missed the numbers when you quoted it to particular sales, which is between the channels.

I don't understand. You want to know how many outlets we are in, is it?

Yes, sir.

I don't have those numbers ready.

Okay, sir. Not a problem. Sir, the mix between different channels, we got quotes in because I just missed it and I'm sorry about that. Can you quote the mix between the same channels?

I had only stated that we have done about 20% on e-com and the rest is on the offline channels. And I think we should leave it at that because there are competitive intensities that I would like to protect myself against.

The next question is from the line of Digant Haria from GreenEdge Wealth.

Yes, sir. Sir, you mentioned that in the second half, we may still grow over the last year's large base, and you have stocked up some raw materials also. Do you foresee any other kind of supply side issues? Or have we tried to insulate ourselves? Because the world itself is going crazy on all kinds of supply chain issues. So just your thoughts on that, if there is demand and maybe we cannot supply wood, is such a situation possible? And how have we hedged ourselves for this, sir?

Fortunately, no, because most of our supply chain is within India. As you know that we have stopped the China finished goods imports last year itself. Most of the components we have tried to indigenize. There are still some components, which do come from there. I believe it is limited in its effect -- negative effect potentially. And we do not see any major supply side constraints to happen.

Okay. Okay, sir. Sir, great to know. And secondly, sir, in your presentation, which you released, you said that rural is seeing some kind of positive momentum again. That's a little different from what maybe a larger company like [ Hindustani ] you have said. So is it because our channel, we used to do distribution through MFIs and those channels, have they come back? Or why is it that we -- what is it that we are seeing on rural for this positive kind of a commentary?

There are 2 ends to the rural business. One is the MFI led business, which we have always stated. Last year, obviously, the base is very small given the fact that almost no lending had happened to noncore loans because these are coming under their additional loans. Because of COVID last year, they're almost stopped. That has restarted. And the good thing is that, that has restarted at a clip, which is better than the pre-COVID year also. That is one good news there. The second thing is On the non-MFI rural sales, which we cannot measure completely, but we can only give you a feel for the Tier 2, Tier 3 cities growth are quite robust. And we believe that, that is also because these cities are greater towns to rural India, and that seems to be doing well. So I think the rural India is doing well. and the products that we are buying are also not necessarily the cheapest. They seem to be buying the better products.

The next question is from the line of Vinod from Dolat Capital.

And congratulations on a very good set of numbers, sir. Just continuing with the question asked by the previous participant. Sir, what is the rural urban mix for us as well as for the industry, if I take it and plant as a broad umbrella across categories?

As I said, the only measurable business that we have stated to rural is in the MFI business. And that has restarted only towards the second quarter of this year, and that is starting to do well. So that will be in the single-digit percentages between 3% and 5%, which we are seeing, which is attributed to rural as we know it. But what is actual rural given the population that is there, which will go through our greater towns, that we can't say how much it is. Our feel is that those markets, those geographies, those [ posh ] strata are growing faster than the bigger cities.

Okay. And again, just continuing on the same thread, one large FMCG company has called out a very big rural slowdown. So what's our view, sir, going forward in the second half of this financial year?

I believe they have a better view. My current cursory view of this is not negative. It is actually doing very well for us. And we'll continue to do it in the second half.

The next question is a follow-up question from the line of Bhavin Vithlani from SBI Mutual Fund.

Some of your peer sets have been talking about significant step-up in the investments on digitalization, and one of them have also mentioned about ability to measure 75% to 80% of secondary and tertiary. So if you could talk about the investments that we are doing on the digitalization? Because for us, so many SKUs, actually, it could help us meet the demand better.

So let me tell you, we have almost 80% visibility on all secondaries that happen today.

And tertiary.

And tertiaries that are happening. All of those are already in place. There is an end-to-end digitalization beyond just monitoring secondaries and tertiaries that is in place, which I don't want to discuss right now here. But I believe that the kind of work that we are doing in digitalization will be unprecedented in our industry, at least when we are finished with it.

Sure. And any number that you would help us on digitalization? What is the kind of spend that we would like to have budgeted as a percentage of revenues?

I don't know whether we have budgeted as a percentage of revenue. There are more than INR 15 crores to INR 20 crores worth of projects as we speak. And in fact, the management and every one of us have said, if more is required, we will do it, but the idea is to get the job done.

Sure. The second question is, I mean, this is my observation. And correct me if I'm wrong, that there has been a considerable step-up in the pace of new products, and I'm judging from the presentations that you have put out. Do you see this pace maintaining? And what's the kind of spend that we do on -- or as a percentage of sales on R&D and innovation?

Again, it's a need based. Our spend is on tooling new molds, on new technologies, on finding out new design. So industrial design, engineering design, tools and molds, and most importantly, consumer research, which is the standpoint of many of these things that we do. And that's something we constantly -- again, there's no budget. What we say is we want to get, let us say, a particular category in which we want to do some disruption, we do whatever is required for that.

We may take a [ review of that ] after spending on all these things.

Sure. Just last question from my side, you mentioned that you're running almost full out in categories like cooker, cookware, et cetera. If you could just help us what is the expansion plan and what is the capital expenditure budget that you may have for this financial year?

This year, we will -- might spend between INR 80 crores and INR 100 crores, if I'm right, at least that is the kind of project. How much will actually get spent will depend on what is the progress on each of those projects. We have substantially -- we have just added 1 new spray line, as I said -- I mean, in nonstick cookware. We are adding another line in stainless steel cookware. There's a lot of investors that we are now doing in pressure cookers as well. But these are incremental investments. And next year, we are doing something else for that. So the capacities in the next 2 or 3 years will actually double.

As there are no further questions from the participants, I now hand the conference over to the management for closing comments. Thank you, and over to you.

Well, actually, that was an interesting session, I must say. And I once again say that we had a great quarter and a great first half. You can see that our margins have been maintained under some very challenging and trying circumstances through several initiatives that we've taken. The company is well placed. There's lots of cash in bank. And it's also well placed in the market as we speak. Our commentary on the second half has been given on the basis of the first half base -- second half base effects of last year, but we are still looking at the second half very positively as we speak. And we hope that we will continue to run well in terms of the top line that we are doing. Thank you very much.

Thank you. Ladies and gentlemen, on behalf of Ambit Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.