V-Guard Industries Limited (532953) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '22 Earnings Conference Call of V-Guard Industries Limited, hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Renu Baid from IIFL Securities Limited. Thank you, and over to you, ma'am.

Thank you, Steve. A very good afternoon to everyone. On behalf of IIFL Securities, I would like to welcome the management of V-Guard Industries with us today. We have with us from the management, Mr. Mithun Chittilappilly, Managing Director; Mr. V Ramachandran, Director and Chief Operating Officer; and Mr. Sudarshan Kasturi, Senior VP and CFO. I would now like to hand over the call to Mithun for his opening remarks on the strong performance for the quarter. After which, we'll start with the Q&A. Thank you. And over to you, Mithun for your remarks.

Thank you. Thank you very much. A very warm welcome to everyone present and thank you very much for joining us today to discuss the operating and financial performance of our company. For the quarter ended September 30, 2021. With the threat of pandemic proceeding, I hope all of you, along with his family and friends are keeping safe and well. I wish you a Happy Diwali in advance and look forward to a prosperous year for all of us. During the second quarter, we have executed well to pick up further on the growth momentum seen in Q1 to post our highest quarterly turnover that exceeded INR 900 crores. Our top line grew 46%, of which, price growth contributed about 20% and volume growth made up for about 26%. Performance was driven by improving consumer demand across the country, as markets reopened after the second wave and lockdowns in April and May. We continue to see the key theme of consumer reference for quality, innovation and service-driven products, the main impact as the country reverts to normal growth rate. For V-Guard, Q2 growth is broad-based with positive contribution coming from all product and geographical segments. The South and non-South markets witnessed year-on-year growth of 44.9% and 48.8% respectively. Non-South market contributed 39.4% of total revenue in Q2 as compared to 38.8% in the same quarter last year. Faster growth in Non-South markets make the business increasingly more balanced with higher contribution coming from emerging states within our portfolio. We have committed and continue to make significant investments in developing high-quality products, widespread distribution and a nationwide brand that is showing up in the performance strength over the last few years. On the product side, our Electronics segment comprising of Stabilizer, UPS and inverters grew at 22.3% during Q2 on a Y-o-Y basis, driven by higher demand for clients and growing it for continuous power assets. In the Electrical segment, which is our largest revenue contributor comprising of wires, pumps, Switchgears and Modular Switches registered a growth of 46.8%. In the Consumer Durable segment, served the fans, water heaters, kitchen appliances and air coolers Q2 revenues grew by 71% Y-o-Y. While the growth was broad-based, the sharp increase in input cost had some impact on gross margins, which came lower by 64 basis points at 30.9% during Q2. While we have taken pricing actions to offset a major part of the cost inflation, some actions will follow in the ensuing months. EBITDA margins were at 10.4% compared with 12.0% in Q2 FY '21. A&P spends were higher than Q2 of last year by 1% of turnover as our branded investments returned to non-material. Profit after tax increased by 18.1% to INR 59.1 crores. Net profit margin was at 6.5% as against 8.1% in Q2 FY '21. During H1, there has been an increase in working capital, as we maintained higher inventory levels to mitigate supply chain. Further, receivables are now fully back to normative levels, with Q2 closing inventory at 41 days of revenues. We have now capitalized our subsidiary V-Guard Consumer Products Limited, that will focus on expanding our in-house manufacturing set up. There, we're reducing reliance of imports and outsourcing, creating greater efficiencies in our public chain. Going forward, we look to maintain the momentum, driving revenue growth and margin expansion. We remain confident that the strength of our brand, distribution and products would allow constant traction and drive stakeholder value expansion. With that, I conclude my opening remarks. And I would like to thank you once again for your participation and would like to hand over the floor to the moderator for Q&A. Thank you.

[Operator Instructions] The first question is from the line of Ankur Sharma from HDFC Standard Life Insurance.

Congrats on a great set of numbers. A couple of questions. One, on the wires, which I assume is the -- in the electrical segment, how much would be the volume and the value growth there?

In the wire segment, I think roughly the VOLS value growth or the price growth itself is about 40%. Sudarshan, what would be the volume growth?

Yes, volume growth was about 5% to 6%.

5000 is the volume growth.

Okay. Second, 2 segments specifically, both fans and water heaters, that is water heaters have done very, very well, especially when I compared to last year, I think we have some supply issues there. So is this taking market share once again? I think you've been highlighting this for some time now. And also on the fan side there I think see the pricing almost doubling over last year. So is this again the new factory that we set up? So if you could talk about both these segments in a little bit more detail?

See Water heaters last year our performance was impacted because of -- we had supply disruptions from our plant. This year also, we had some issues, but it is for a lesser degree. So we have got back some of the market share we have lost, that was as far as water heater is concerned. As far as fans is concerned, yes, we have -- starting with our new plant in Uttarakhand, we have launched some new ranges, which are doing extremely well, and they are in the more premium segment. So the realization is also high.

Okay. Fair. And just on the margins in the durable segment, which kind of seems to be a little lower a 3% historically, given that 5%, 7% kind of range. So is it some delayed price hikes here, which you now take and which segment you guiding that lower margins on the durable side?

Yes. I think there has been some lag in price hikes as far as the durable segment is concerned. There is some lagging in the fans and water heater segment. Whereas kitchen appliances, the prices have been at par with the input increases. I think in the following quarters, especially with fans, starting with Q4, when the season starts again, we should come back to normative level. Ram, do you want to supplement anything?

Yes. I think that is correct. I think Fan and water heaters, there is a lag in price transmission. I think in water heater -- sorry, in fans, for example, we also have CPW, which is being imported. And we have a plan to move to domestic manufacturing. And to mitigate the input pressures arising out of freight and the tariffs that have been put in place here. So I think is -- I think this is transitionary. I mean also, I think the -- we continue to have challenges with our water heater factory. I think although we have seen very good gains relatively, this...

Maybe we can move to the next question. When he comes back, we can continue.

Mr. Ram is connected sir. Mr. Ram, can you hear me?

Sorry about that, I think I got dropped off. What I wanted to say, there was strategic issues. I think there is a delayed price lag. There is a bit of delay in our ability to immediately respond to the challenges on CPW fans, for which we have already put the response mechanism in place, which is what Mithun was referring to. And I think there are some one-off costs, which should be there connected with our water heater operations, as we have supply chain challenges with the factory being remote. So I think these are some of the issues. I think they should pass -- we don't see any, what I would say, long-term challenge in both these areas. There is also higher anti this year compared to last year, for durable, it's about 2% difference in terms of the market. I think also for everybody also, there is a lag in -- so I think there's a general lag in these 2 categories compared to other categories in the rate of transmission.

Okay. And just one last one if I may. On the end demand, how is that panning out? I mean, we did hear from some of your peers, there was some softness in September, but things seem to be kind of getting back on track as we get into the winter. So if you could talk about what are you seeing in your end markets? And also, how the whole effective is going on there?

Ram, you want to take this?

Yes. I think the demand side is quite fine. I think holding out well. I think, of course, there are -- if you look at our overall portfolio, right? So I think in the stabilizer-like category like air conditioners, we wait to see for a regular summer season, and that's true for all summer products where we can see better demand closer to this category reality. There are the builder-driven categories like wire, switches, and switch gears. I think here, again, demand has picked up, but demand normalization is also dependent on how the activity on that side is progressing. Input cost in Bulgaria, like wire and all has gone up 40% as also other products has gone. So I think that part. On the consumption side, I think, by and large, I think the demand is fine. The consumption side is holding quite all right. And I think we expect this to be maintained going into the festive season.

The next question is from the line of Aditya Bhartia from Investec.

We have seen a fairly strong revenue growth as well as volume growth this quarter. Was it in any way driven by channel selling or pre buying or do you think that secondary sales themselves would have been very strong?

No. For us, there is absolutely no channel filling. You can see our debtor days have actually come down from June. What essentially happened is, if you look at Q1, our performance was slightly below par. That's primarily because 3 of our large markets, Kerala, Karnataka and Tamil Nadu continue to be shut even towards the end of June. So obviously, those markets have responded fast. If you see South India, expenses have grown at 44% on a very high rate. So that also shows the kind of growth. It's purely -- consumer demand driven. The different companies have different market shares and different revenue shares in different areas of the country. So depending on how these things reopen, we will all, at different points of time, we have different growth rates. So maybe if you look at actual numbers, we should be largely in line with peers.

Understood. Understood. That makes sense. And when we speak about the next couple of quarters, how are you really seeing the demand shipping up? Do you think that, let's say a double-digit kind of revenue growth can be possible in the next 2 quarters, given that we had some pent-up demand benefits during the same quarters last year?

Sudarshan, you want to take this?

Yes. I mean it's -- there the COVID. So therefore, there is no third wave, I believe it's not, the double-digit turnover is also be possible.

Okay. Okay. And the last, what kind of incremental price hikes do you think you'll require in wires category as well as all other categories put together to completely pass on the material cost inflation? Assuming that material costs stabilize where they are today.

So wire, anyway, the whole industry has a very dynamic price. So depending on how the copper moves, it can be even in 2 weeks to 3 weeks, there can be changes in prices. So we are not very worried much about wires. Because there is a lot of proactive price increases that is taken by all brands, because margins in that category are not that high. So most companies are realized that it's better to increase and decrease as the copper prices. So for example, we have just -- even with the recent spike in copper, that also seems to be fully passed on to the market. Whereas other categories, depending on the category, there are some lags, like we've mentioned. Kitchen is largely okay. I think price increases are sufficient. I think water heaters and fans that should more price increases are required. Ram, do you want to supplement this?

Yes. I think, Mithun, broadly, I think we are in a good place. And I think further increases are being rolled out as the price increases are materializing on the input side. I think fan and water heater is where the major gap has been -- and this also actions are happening over the next 3, 4 months. So I think if you look at us today, I think last quarter, if you look at our last quarter numbers, right, I mean you would roughly see a 2.5% to 3% gap, like, depending on which category you look at, and that's the kind of gap we're sitting. I think this gap should progressively vanish over the next 2 to 3 quarters, depending on the market situation and the situation on input side, because some of the inputs are still moving forward, right? So what's happening is, even as we are correcting for some new changes happening. The significant of our increase it's a quite large. It's easy to transmits in most categories are which are a function. So wires, there's no challenge. There are categories, there is a standard pricing discipline and it's happening. The key challenges arising in Consumer Durable, right? Again, the operating margins of different companies are different, right. So if you look at some of its we have a blend of distribution and direct selling to retail, right? And that makes you what I would say more skewed towards direct selling to retailers as opposed to competitors, right? So the inventory of older price in the market is different a different term stage in each company. So I think the markets are a bit different also. That's one part of it. And the second part of it is that all of us are, what I would say, passing on the increases with a lag. And many of the categories are seasonal, right? So it's also difficult to correct prices outside of season. Because generally, in season or as the season is commencing, it's a lot more easier to land the price changes. So these are some of the facts that which are affecting the timing of transmission. Categories like kitchen and/or are fine, there's no major issues. So it's really, I think, Fan and water heater, which is what needs be translated.

Understood, sir. And sir, wires, when you say completely pass onto cost increase, do you look at absolute contribution that you make on let's say per ton basis or you always kind of for your calculations, if you look at margins to be maintained?

So generally, we try to maintain margins in wires. But this is also a market. There is a short-term factor, and there is a long-term factor, right? The long-term management of margin is generally related to what I would say, we try to maintain our percentage utilized. In the short term, I mean, it's a competitive market, different views can be taken by different people. But for now, I think the way, it is trending and tracking, we -- thus far, we have been able to protect our margins. That is as a percentage of revenue.

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

Just quick 3 questions. Firstly, any change to the CapEx outlook? I think we discussed INR 200 crores for 3 years, fiscal '22, '23, '24. Any change to this provided now...

Plans remain the same matter. Nothing major.

Okay, got it. Secondly, on the Kerala floods, any negative impacts this quarter, the current quarter?

No. This time, I think as of now, it's only a very small part of the state, there were some small amounts of flooding. And there was also flooding in Uttarakhand, where some of our suppliers have got impacted. But it's not very large. The impact is not very large. It is not like the flood, which are more widespread, 2, 3 years back. So I wouldn't say there is any material impact as of now.

Got it. Perfect. And the third question has already answered. Thank you so much, and Happy Diwali to the V-Guard family.

[Operator Instructions] The next question is from the line of Achal Lohade from JM Financial.

Congratulations for the great numbers. My question is when you talk about the delayed price increase in case of water heater and Fan. Now I do here even with respect to fans, it's off season. So it's a little difficult to pass on. But what about water heater, what is driving the delay in cost inflation? Is the cost inflation much higher for us compared to the peers, specifically for the water heater?

Ram, you want to take this?

Yes. No, I think it's not very different for us compared to others. Yes. I think there are multiple factors as far as water heater is concerned. So one thing is we continue to have challenges to get the right output to the scale and quantity and mix that we need out of new plant. See, this plant was commissioned right in the mix of days one of cool. And last year, in the season, we had 3 months of shutdown. And this year also, what has happened is the area around the factory went under lock-down and we lost about 15 odd days. And there has been heavy rains and the roads has been blocked and we lost one to 2 weeks of time in that also. So I think we've lost production time and because of COVID and COVID and plating, even our new product commercializing in that factory has got impacted. So there is an impact on product mix, some of our high value have not been able to serve. So I think that's one issue, yes. Second issue there is a general lag in input cost transmission in the water heater industry, and this is true for us and for our competitors, not there any cost specific to us, right? And what's happening even as we are passing one set of increases, another set of increases getting triggered. So mind you, I think we would overall, right? If you look at the new overall have transported area from 18% to 20% increase, including wire and our non-wire categories close to about 10% of correction has already been passed between November of last year and maybe, let's say, August or September, right? So this is a continuous process. These categories are not used to frequent increase in transmission, right? So it's a bit of a challenge. And even as we speak, ahead of the season, we have -- or even as we speak, we have announced one more round of correction, right? But there are further increases in input costs, which have happened as we speak last month and early part of this month, right, in some of the commodities. And they will find reflection in a couple of months on the line in our mob and in the pricing in the market. So I think these are random. There'll be some one-off costs in the supply-chain kind related to storing movement and all that, given some of the challenges for post-COVID that are arising here. And even the kind of utilization of the plant that you would have wanted to have or we have not been able to have. So it's -- a portion of it is what I would say, our own internal challenges, and a portion of it is related to delay in the transmission of prices. Mithun, anything else you would like to add to that?

No, I think there is nothing unique for us, vis-a-via competitive. There is a lag and it is not that companies don't want to increase prices. These categories are not used to this kind of quantum of increase 10%, 20% over 1 year. So it takes some time. And there are continuous increases happening. So that is also one of the reasons. But I think it should normalize. I think there are some encouraging signs that come out of the price uptake. We are seeing some correction in copper as we speak. So I think we should be good for that.

Is it also to do with the competitive environment, because we have seen lot many players are entering into these categories and with reasonable brand strength and focusing on these larger categories?

I mean, that's not a new issue. That issue has been there for the last 4, 5 years. So water heater as a category, those kind of issues have already manifested even before COVID. So I wouldn't correct that to this, because even in fans, there is a delay in price increases. So it's not only water heaters. The same applies to fans as well.

So Mithun category like kitchen, for example, right, which is equally competitor and has a large number of players. The pricing transmission has happened there, right? So I think it's not related to that. I think it's basically related to the category factors, right? See, what happens is it's not before May or June that it will be the channel is starting to buy maybe June, right, is when the channel is starting to buy for the new season. How much increase can we pass on and we'll get out of the season somewhere in the selling in part of it after 15th or 20th of December. The selling into the trade is popping, right? And the entire series of increases that have happened, they have happened after December, right? So on the input side. So actually, from end of November onward always there'll be input prices have started to go up. So I think these increases will get passed in stages, right? So some increases have happened as we started the season -- started pre-selling to the season. Some increases are happening within the season. So it's a gummy, I think. And -- but even as we are doing this, there was another set of increases in May, June, July, then there is no other set of increase in September, October. So some -- when we look at the market of commodities, which is going to the product, the increase is progressive, right? So I think that's the reason why probably there is a bit more challenge here.

Understood. Understood. And you talked about some one-off costs related to supply chain. Can you elaborate a little bit what is the impact?

No, no, I'm just -- I'm just saying that we may add for example, our warehouse has been taken over to be converted into a COVID center, right? So we have to run around and take another warehouse, move all the material. So I'm saying these are all very operational things. But the point I'm making is finally small, small costs are getting loaded, right? So each one of them will add some 0.3%, 0.2%. When they all get added up, they somehow become meaningful. So I'm just saying there are a basket of factors. So there is a product which is so to some degree. There are some supply chains. For example, we would have gone long and stored more materials or paid more on inventory carrying costs instead of that. Sometimes, we are achieving our numbers, selling a lower margin model compared to a higher-margin model. That's going to dilute our mix, and it's going to have an impact. So these kind of things are also happening. So I think there is some bit of, let us say, if you have some gap, maybe 25% to 30% of the gap is mix only. Then our supply is normal and whenever flow of activity in the back end is more normal, probably 40% to 45% of whatever our margin gap is we will get addressed in normal course, right? The remaining is what we'll have to addressable transmission.

Understood. This is very helpful, sir. And just a clarification on that. By when do you think that this will be kind of behind us for the water heater specifically?

As Ram mentioned, no, like I said, this is an extremely seasonal product with Q2 and Q3 accounting for bulk of the sales. So I think right now, we are in the middle of the season. I think we don't have further increases in commodities. And it looks like it's kind of tapering increases the tapering down. We should be able to pass on the next increases because during season, if there is a good winter companies will and they would take the price hikes, because that's when there is an actual demand for the product. Ram?

Yes, Mithun, as I think some of -- I think the part of the journey, which is related to the operating efficiency part, which I was talking about and production mix part, I think that will get sorted by next year, when we are able to run it more efficiently than what we have been able to do this year. I think the part of pricing transformation, I think, definitely, we are looking at some transmission end of this month also. And hopefully, if there are no further increases, I think it should be adequate. But we will see. I think we have to see -- I think we have to see how the input increases in September and October and time like that. So some increase in early October and the second footnote of September in some areas that we have seen there. That might probably not -- those increases might probably not impact maybe this quarter, maybe next or something like that.

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

So this question is slightly longer term, and it refers to the Slide 14 and 15 of our presentation. And there are categories like fans and switches and switch gears, where the market share for V-Guard is low single-digit. If you could just give us about 5-year view of what in your view is the aspirational market share for the company over the next 5 years? And -- or are there any of these categories where after having entered, we realized we don't have a right to win and maybe we would like to exit there?

Ram, do you want to take this?

Yes. Yes. I think we can separately catch up on the long term, right? So it's difficult to discuss the long-term outlook for so many categories. I think a more reasonable view to look at is there many of these categories that we have entered, I think, over the last 5 years. And at this stage of the journey, right, our fundamental focus is not revenue, right? Our fundamental focus is to build capabilities, to build the category understanding, category insight, the manufacturing and R&D infrastructure, right, and to build our product platforms, right? So this is where our focus is. And put some of these into markets and understand how they are performing some of our commercial operating model. So that's -- those are the aspects. For example, and I'm talking about switches -- switch gear, sorry, air coolers, kitchen, yes, some of these new categories that we are into in the last 5 years. So I think the focus of these categories is there, and that's what we like to measure. And our view there is that we are tracking well. The second thing that we are focusing on, right, for any consumer business, I think having a good commercial operating model is a very important part of growing and building the business, right? So a lot of the work and focus that we are operating on is a center to yielding our commercial operating model, right? So we have done a lot of work on supply chain to build a very, very efficient back end so that we can shore up the competitiveness of V-Guard. And I think if you look at the last 2 years and in the coming 2 to 3 years, so you will find that we are getting into manufacturing in a very, very significant manner. I think as more making the Board has upgrade for setting up the -- facilities and the current board meeting agent 2 more facilities. All of these -- and this is following our recent opening of activity per time and what roped in the previous 18 months. So fundamentally, we are working hard to build our internal manufacturing capability so that we can make more efficient products here. I think and also should improve our competitiveness, and that should help to generate the fuel for growth, right? The early part of the early part of this period, we worked on what I would say on our supply chain capability, became efficient in managing cash by converting, improving our working capital efficiency right? That's really a lot of during the last 4, 5 years, and that's what we have invested into manufacturing and into R&D. So today, gradually, we are moving to a scenario where we are owning most of our design. We are differentiating them so that we can close and better and realized better value. So this is the part that we have worked on. And I think that our focus will fundamentally remain to improve our capability and competitiveness. And that's also what we are doing in the new categories. So in terms of our precise goals and objectives on these categories, I think we can take them separately, right, because there are so many categories and each will have a different path. They have a different starting period, different challenges.

Sure. Just one follow-up on this. Any categories where you're confident of double-digit market share in the next 3 years?

I think, see, we really have double-digit market share in water heater today and what I would say stabilizers, right? So these are 2 categories we already have. I think pumps is an area where the space of pumps that we play, we have a decent market share. And wire also, wire is an area where I think we should be able to get there. I think we should be at 8% to 9% in wires, right? So these are areas that we should be able to get that. Yes. The other categories in the next 3 to 4 years, I think may not be looking at a double-digit market share.

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

So my first question is regarding the market share. Can you quantify the market shares that you currently enjoy in the key segments such as water heaters, stabilizers, cable wires, and fans?

Sonali, there in the presentation. The last 2 slides that should have the market size.

Sorry for that. And secondly, you mentioned that -- the average cumulative price hike has been about 10% over the past year. So how much of that was taken in Q2?

I think the improvement in the price increase on limited, right, Sudarshan?

No, no, it's been happening over a period ahead. I mean, a significant portion would have happened in Q2. I don't have the exact number.

I think the 30% is over a period of 8, 9 months. So how much of it exactly?

I'd say 3% to the probably 2%, 3%. What we can say is Q2 prices over Q2 of last year is 10%, okay? 10% higher. Yes.

Got it, sir. Sir, and lastly, what is the current in-house manufacturing proportion for us and does fans increasingly getting in-house, where do we expect this proportion to reach in the medium term? That's it from my side.

Sudarshan, currently, it's about 45% - 42%?

Yes, and it's closer to 50% now. It's been going up. We are close to 50%.

We are close to 50% and maybe it will go to about 60% in the next 3 years.

With these projects, we will eventually reach 60%.

60%, 65%, yes.

The next question is from the line of Narendra Mhalsekar from IIFL.

My first question is like with the sharp price increases that you have seen in the short time frame. Are we seeing any change in customer preferences? Like are we replacing any down trading in any of the categories?

I think it maybe too early to call that. We have not so far experienced something at there, in fact, I think it's a very product-driven market. For example, in the fans, our premium segment is growing faster than our standard segment. So we really are not able to draw a trend like that as of now.

And secondly, what are the initiatives being taken on like new product introductions? And like what is the innovation pipeline? And what are the segments or categories that we are targeting? And lastly, any updates on the large kitchen appliance portfolio where V-Guard was planning to enter in FY '22?

Ram, you want to take this?

Yes. So I think we have a reasonably healthy funnel, okay? We have a reasonably healthy funnel to deliver and meet the growth of the peaks for the coming 2, 3 years. I think the challenge really will be how are we able to extract the planned outcomes out of that, and that is a function of also how COVID will move forward, right? So we have a decent funnel and cutting across categories like to be able to meet and support our growth objectives. When it comes to -- it would be a bit hard to say because how much then was and at the end of the day, our estimate right. So we typically try to have at least 15% of revenue as a target roll-out to, right? So -- but I think the real challenge is, so even if you roll something out, how are you able to get the right kind of the same uplift in the market, right? This is a bit of a challenge in growing and driving in this COVID environment? So there has been interruptions in our - wire, either on time or to develop them on time. So those have been some of the interactions, right? So I think that's one part of it. When it comes to large appliances, I think you're referring to -- and water purifiers. So, water purifiers we have lost on what I would say, e-com, and we are getting good traction. We have 1 platform. And shortly, we are about to launch another platform. That's progressing on core. So I think we are having some challenges at -. So that's fundamentally related to the sourcing side. I think getting supply out of China on time and in quantities that we will want has been a challenge. So there, we are a bit behind our plan in terms of -- the product acceptance, in the ratings, we are all positive. But in terms of our ability to meet the plan, that is a challenge here. On the other hand, in case of water purifier, we are moving ahead of plan. So I think if you look at it, the large appliances in the portfolio, we are broadly on schedule. But our ability to activate these actions, right, both on time and across channel and particularly by the active front end engagement. That's a bit of a challenge. But things are getting better last 2 to 3 months. Our sales force is again becoming active and we are watching things from the ground and -- but it's still going to take some time to recover. The market working is going to normalize. So that's how I would put it that.

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

I have one question. In your presentation, you have stated that after the total top line business 46%, 20% is price growth, while on the price increases, you have stated on Y-o-Y basis, it is 10%. So is my understanding correct over here that this additional 10% would have come from mix improvement, premiumization or something of that sort?

No, the thing is wire has a 40% price growth and wire is about 25% of the turnover. So that will come to the balance 10%.

And secondly, any -- while you have explained in detail on price hike, but any quantum you wanted to share like in fans, you've stated a seasonal product, and it will be taken in subsequent quarters. But any quantum at current juncture if commodity stays where it is, what kind of price hikes would be needed in fans?

I can't say that now. It is a moving thing and it's also a competitive action.

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

I just wanted to check in terms of the secondary sales tracking, if you can elaborate a bit as to if the secondary sales are being tracked and to what extent and what are we doing with respect to the distribution cost?

Ram, you want to take this?

Yes. So I think I will address both parts. I think earlier also, there was a question on that, right? So fundamentally, we are able to say that our inventories have not gone up because the secondary sales data that we are collecting, it is consistent with what I would say, our long-term retail inventory here. So I think the trade inventory is quite fine. I think we have, what I would say, we have a system for gathering secondary data, both inventory and sellout. And which is now being technology enabled. I think as we still getting the technology enable part of about 40% to 50% of our revenue will be technology-enabled, where we have 100% visibility on the sell-out of an inventory. But this is still ongoing, and it takes some time before we get to about at least 75% to 80% of the revenue being captured on the technology enablement side. See, on the distribution side, I think our -- as we went post the COVID 1 and again, with COVID 2 coming in, mainly our focus has been to, what I would say, build and establish business through our existing relationships because of the uncertainty in the market, right, and which we will take partners are exported and many geographies. We have been containing essential travel for a large part of this period. And by the time it comes out of this curtailment and we start normal working when we had it explained the last time. So I think the activities in terms of spreading distribution thus far have been limited in terms of acquiring with new customers. So it's more on maintenance mode, I would say rather than on aggressive expansion mode as far as the distribution expansion is concerned. But as far as the sellout management is concerned, I think we are doing work in that area, and we've made significant progress in terms of putting into place and what I would say, influences and promoter management system and secondary system. So these 3 technology-enabled systems. We have been working on over the last 1 year, and these are in place. But the penetration of this is in different stages, and -- made about 60% to 70% COVID has the target. And in some places, so we are at 35% to 30% of target, depending on the stage of development or the stage of roll-out the V-Guard is. But these are very much on the way to roll out. And I think in a year's time, we should have a very strong grip on what's happening inside that trade compared to, let's say, where we were about pre-pandemic.

Got it. Sir, one more question I had was with respect to this competitive intensity now, we've seen that the smaller or regional or unorganized players impacted severely, actually more in COVID times. So are you seeing the situation is normalized? They are coming back in the market? And the kind of market share against the organized place had, do you think that substantial part of that would be retained by the organized players or do you think we could see the market share give up?

So there are 2 views which are coming, right? So there is a market view, which is driven by presence in the market. And there is another view which is coming from the back side, which is coming from talks with, let's say, vendors or talks with people on the investment banking side and all that. So there are -- so one thing is -- so what we find when we hear from the back-end side, I think the regional competition, smaller players are significantly impacted financially and operationally, right? So they're having working capital challenges and those kind of. So I think that's what we are seeing and hearing. And if you look at the front end, from a presence point of view, they are present and they are visible. But the severity is not as visible as what we can -- what we see and what we hear from the back end. So I think that is an operational perspective, which is their presence in the market and their activities in the market. I think it is weaker compared to what it was before. But the insight that we are getting from the back end, I think a number of them are significantly impacted.

Understood. Understood. And just one on -- just a clarification in terms of the margins part, given the kind of cost inflation, we are seeing and the price increase we have taken or planning to take, you think it would be able to maintain a double-digit margin in the coming quarters and years?

Sudarshan?

Double-digit EBITDA margin? Yes, that is possible. I mean, in this quarter, we have but, that should be away.

Understood. And just one with respect to the tax rate, what is the tax rate one could look at for FY '22-'23 and especially given our improving in-house manufacturing and the tax benefits. So what is the tax rate one could look at on a steady state?

Steady state, if you look at 25% tax rate. The new subsidiary will -- once it becomes operational all that, there will be some slight benefit, which comes from there. So it could go to 125, but 25% is a good number.

Even for FY '22-'23, sir?

Yes, FY '23, yes.

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

Just continuing the question of the previous participant. You had guided for a 50 basis point per annum increase in the margins every year. So in your view, are you on track for that for the current financial year and the next?

So I think if you look at our overall performance, like, there are 2 drivers, which have affected our margin performance vis-a-vis our long-term revenue and guidance. One is, I think the last 2 years, summers have been bad, and therefore, the -- our AC stabilizer business has not performed as it has normally performed. So there is some amount of profitability contribution which is coming from that, and that we've not been able to benefit both yet because, see, AC stabilizer, air coolers. So these are products when the trigger is very strong, it's consumed and after season, people can manage it with the fan or whatever. So I think -- so that's part of the reason why we are seeing some erosion in our margin because it's our bread and better product also. The other part of it is related to fan and water heater. Related to that, there are actions which are planned, and these actions have been some of have been rolled out and some will get rolled out as we speak. Sorry, over to you.

I think in the current year, especially with this kind of cost inflation, we are -- we are not sure whether we can expand margins. But we also had a bad start to the year. I mean, last 2 years consecutively, if you look at the stabilizer of the category, it has probably not grown for the last 2 years. So I think there is a little bit of mix issue also. So any add, I will bring it to handle on things we finished Q4 because Q4 also can be a very good quarter in operating to. So we are ready.

There are no further questions. I now hand the conference over to Ms. Renu Baid for closing comments. Over to you, ma'am.

Thank you, everyone. On behalf of IIFL Securities, I would like to thank the management for giving us the opportunity to host this conference call. I would now like to hand over to Mithun for any of his closing remarks on the call. Mithun, thanks a lot.

Thank you. I'd like to thank IIFL and Renu Baid for hosing this call. And I would like to once again wish all of you a very Happy Diwali. Thank you very much.

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