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Edited Transcript of CROP.NS earnings conference call or presentation 24-Oct-19 5:30am GMT

Q2 2020 Crompton Greaves Consumer Electricals Ltd Earnings Call Hosted by Axis Capital Ltd

MUMBAI Oct 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Crompton Greaves Consumer Electricals Ltd earnings conference call or presentation Thursday, October 24, 2019 at 5:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Sandeep Batra

Crompton Greaves Consumer Electricals Limited - CFO

* Shantanu Khosla

Crompton Greaves Consumer Electricals Limited - MD & Executive Director

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Conference Call Participants

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* Achal Lohade

JM Financial Institutional Securities Limited, Research Division - VP

* Ansuman Deb

ICICI Securities Limited, Research Division - Aviation Analyst

* Arnab Mitra

Crédit Suisse AG, Research Division - Research Analyst

* Charanjit Singh;DSP;Analyst

* Inderjeet Singh Bhatia

Macquarie Research - Head of Research

* Mayur Patel

IIFL Asset Management Limited - Principal & Fund Manager of Listed Equity

* Niket H. Shah

Motilal Oswal Asset Management Company Limited - VP & Associate Fund Manager

* Pulkit Patni

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Rahul Gajare

Haitong International Research Limited - Research Analyst

* Renu Baid

IIFL Research - VP

* Shrinidhi Karlekar

HSBC, Research Division - Analyst

* Tanuj Mukhija

BofA Merrill Lynch, Research Division - Associate

* Vinod Bansal

Franklin Templeton Investments Corp. - Assistant VP & Senior Research Analyst

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Presentation

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Operator [1]

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Good morning, and a warm welcome to the Q2 conference call for Crompton Greaves Consumer Electricals. On the call today, we have Mr. Shantanu Khosla, Managing Director; Mr. Mathew Job, Chief Executive Officer; Mr. Sandeep Batra, Chief Financial Officer; and Mr. Yeshwant Rege, Vice President, Strategy and Financial Planning. I'll hand over the floor to Mr. Khosla for his opening remarks and overview for the quarter gone by. Thank you.

And over to you, sir.

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Shantanu Khosla, Crompton Greaves Consumer Electricals Limited - MD & Executive Director [2]

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Thank you. Sorry for the confusion at the start of the call. Shantanu here in Bombay, along with the team. Thank you all for joining us on this call this morning. As usual, I'll briefly sort of give a little bit of flavor on top line and then we'll keep as much time as we can for questions. Right? So diving straight into it. Overall, for the quarter, our total revenue was up 4%. And our total profit after tax was up 44% after, of course, making necessary adjustments for the new tax rates.

Within this, getting into our segment-wise, the ECD segment has continued its strong momentum, registering double-digit growth. All the businesses in the ECD segment have performed well. We've had close to double-digit volume growth on Fans, agricultural pumps continued to deliver steady volume growth at 17%. And of course, appliances, which has been a new key focus area for growth over the last few quarters, has continued accelerated growth for really the fourth consecutive quarter, led by geysers with a 38% value growth. Now this performance of ECD is, in spite of some challenges we had, largely in September due to the heavy rains and floods, particularly in Eastern India, which did have an impact mainly on our pumps business. So we did lose some business simply because of closures during the month of September because of the floods and very heavy rains.

As I've mentioned and I've talked this before, over the last few quarters, we have been focusing on revamping our appliance business. And we started really 2 winters ago -- 1 winter ago, last winter with geysers. This last summer with coolers focus and then we continued the focus on geysers. Really, this program is all about superior products based on meaningful consumer needs, strengthening our portfolio, investing in both distribution and marketing. We're really happy with the progress, though it is still a relatively smaller part of our business, and we've been talking about 30% growth rates in this segment every quarter for now on a sustainable basis for the last 3, 4 quarters. And this, as mentioned, will be a key to our future growth.

We had a number of portfolio initiatives in geysers this winter, things like solarium, Neo, Cube, Amica and have really redefined our entire brand architecture for geysers on a good, better, best platform. And this is clearly getting traction and delivering growth. As we move forward now, the next key segment on small appliances. We're going to begin to focus in on the same real model, meaningful consumer needs, strong products, supported by distribution and advertising and investment will be mixer grinders, which is the next large segment.

So next, the ECD business continues to be robust. In fact, not only did we deliver good top line and market share growth, our gross margins on our ECD business versus previous year went up by 240 basis points, essentially behind our ongoing long-term strategy of driving down cost, building mix and some amount of price increase.

Moving on to our other segment, which is Lighting, where the top line declined in double digits and clearly, that has been challenging for a while. Just to break that down a bit, the first thing is this quarter. A significant amount of the decline was really driven by the EESL business, where we had a very strong quarter in the base period. And this quarter, the EESL business is kind of ramping down and is relatively much smaller. If I net out the EESL business, our decline was about 3%.

Within this also, if we look at our 2 different segments, B2B and B2C, as we've talked in the previous call, we see B2B as a key growth area. And we have been making significant investments over the last couple of quarters in revamping our structure, building our capabilities and also building enabling technologies. On the B2B business, we are beginning to see the initial signs of response of this new investment and program. And over this quarter, our B2B business grew around 9%. We expect as we keep developing these programs, having a look at our order book moving forward that we should be able to continue to grow this.

The B2C business, of course, as all of you are aware, probably aware, has been exceedingly challenging, essentially driven by continued significant price erosion. Roughly speaking, on an average, in this quarter, we experienced an average price erosion of around 15%, which is obviously significant. Now we have continued to drive cost out of the system so that we keep our gross margins more or less whole. But that being said, while we are continuing to get volume growth, for example, volume growth in our factors and panel segments of this LED business was about 35% in the current quarter. Obviously, the challenges in the near and midterm are the price erosion, which we believe is largely being caused by the intense competitive intensity from both large and small players.

We, however, continue to invest behind the business. We're investing in our capabilities. We're investing in our technology. We are making capital investment in improving our productivity in our plants. For example, we're in the process of investing in automation and alliance for LED. And importantly, we are continuing to invest in advertising to drive brand awareness.

In the current quarter, our total spending on advertising and sales promotion was INR 23 crores, as we are focusing on driving the awareness of new products. For the first half of the year, our A&P spend has been INR 68 crores, close to 3% of our revenues, which is 35% higher than the comparable period last year. We believe that, given the strength of our ECD business and our continuing improving margins as a total company, it is important to keep investing in these capabilities and advertising for the long term.

As I mentioned, our profit after tax was up 44%. However, even net of -- if you don't consider the tax implications and if you look at just the PBT, PBT, as a total company, was also up by -- margins were up by about 70 basis points this quarter versus the previous year. Net overall, ECD continues to be strong and robust across the category. This continuous growth is coming sustainably in appliances. Our margin and profitability structure remain among the best in the industry and continue to improve. We are continuing to invest in Lighting, especially the B2B part and advertising. It stays a challenging business as we look forward, essentially due to the price erosion.

With that, I'd just like to stop and throw it open to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Inderjeet Bhatia from Macquarie.

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Inderjeet Singh Bhatia, Macquarie Research - Head of Research [2]

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My first question is on -- if you look at the overall EBITDA margins, which are kind of flat year-on-year, but we had a very significant gross margin improvement. Could you just throw light on why the other expenditures are up significantly? Because understanding would be the Lighting segment has got hit by the price deflation, so that should have ideally shown up in the gross margin itself. So if you could just clarify on that?

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Shantanu Khosla, Crompton Greaves Consumer Electricals Limited - MD & Executive Director [3]

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Okay. I'll give you a quick snapshot, then I'll let Sandeep talk more details. Basically, the difference between the gross margin and the EBITDA and the PBT, if you will, is because we are continuing our programs of investment, investment in capability. For example, just as an example, we've recently hired a Chief Technology Officer for the company. As I mentioned last quarter, we have invested significantly in an entire new structure for our B2B sales. We are continuing to -- our investment programs in technology. These kind of investments, we believe, are absolutely the right investments to continue to make and not pull back on. On an operating basis, our gross margin reflects our efficiencies in driving our costs down. And that all is healthy.

The others are conscious investments. We have been making these investments steadily over the last 3, 4 years. And as a net, we believe this will enable us to continue long-term capability and growth, while, as you see, we are continuing to build overall profitability margins of the company, where if you look at this over the last 3, 4 years, you will see our PBT percentage has consistently gone up. And today, our PBT percentage, which is a key one we're looking at, is actually the highest in the industry.

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Inderjeet Singh Bhatia, Macquarie Research - Head of Research [4]

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Okay. The second question is on the Lighting. Is there kind of a roadmap as to bring these margins back to closer to high single digits or maybe even double digits based on our sourcing strategies? Is there a time line that you want to kind of give out on that?

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Shantanu Khosla, Crompton Greaves Consumer Electricals Limited - MD & Executive Director [5]

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Again, we are focused on making sure that we drive our costs so that we do not slip significantly at gross margin. So as price erodes, we are working, and we continue to work, as we've done over the last few years, accelerated cross programs to drive -- to ensure that the gross margins stay plus/minus intact. We will continue to invest in the business below the gross margin line as required based on the competitive pressures.

So I don't want to give you a time line on when the EBITDA of the segment will come up. We can talk EBITDA of the total company. And gross margin recovery due to the price erosion on Lighting. And we fully expect that gross margins based on our cost reduction programs will come back to our kind of growing level over the next couple of quarters.

But we don't want to do things like cut back on advertising, cut back on investments in our B2B sales infrastructure because we believe the right way is to build this business for the long term. And the overall performance of ECD is enabling us to invest in Lighting in this competitively challenging period.

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Operator [6]

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The next question is from the line of Arnab Mitra from Crédit Suisse.

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Arnab Mitra, Crédit Suisse AG, Research Division - Research Analyst [7]

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Again, on Lighting, I wanted to ask, does it based on what your last year's EESL on the sales volume in 2H and the visibility that you currently have, do you see EESL continuing to be a big drag on the top line growth in Lighting in the second half?

And related to that, on the margins, and when last year, initially, your margins had fallen to 6% in the first half, you had clawed back with margins to 11% at the Lighting segment level. So the fall that we've seen last quarter, I think there was a provision also, bad debt. Is there something similar this quarter? Or is this purely pricing moving more than what you had expected when the year began?

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Shantanu Khosla, Crompton Greaves Consumer Electricals Limited - MD & Executive Director [8]

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It's essentially a significant more price erosion than we had expected. And the difference we are seeing in this and in the more recent price erosion is, in the past, price erosion was, in a sense, cost justified. It was supported by active cost reduction projects across the industry. Now we are seeing more price erosion, which at least based on our judgment, is more simply competitive and not cost justified.

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Sandeep Batra, Crompton Greaves Consumer Electricals Limited - CFO [9]

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In terms of EESL, you asked this question on EESL, I think, of course, in this quarter, the EESL number that were down quite dramatically from almost INR 50 crores to INR 20 crores. However, I think, going forward, is difficult to predict.

While we have a strong order book with EESL, where exactly those would be actually -- will actually be -- we executed is not very clear yet. So I would not -- we would not be able to tell you how the EESL business will pan out. All I can tell you is that we have a reasonable order book with the EESL. But depending on when they would actually procure those materials, the numbers would then shape up accordingly.

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Arnab Mitra, Crédit Suisse AG, Research Division - Research Analyst [10]

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So the pace of the EESL numbers are also high in the 2H similar to 1H? Or is that lower -- that would be something you would be -- you would have with you?

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Sandeep Batra, Crompton Greaves Consumer Electricals Limited - CFO [11]

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The order book, which we have for years today, at the moment, is stronger than what we had at the beginning of the year. But the -- what we observed in the first half is even when the orders are available, the pace of procurement, it actually has been quite low, especially in street lighting. So just having an order book doesn't mean that the business is going to -- we're going to buy into the next quarter. So we won't be able to predict...

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Arnab Mitra, Crédit Suisse AG, Research Division - Research Analyst [12]

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Actually, my question was towards '19, was it weaker than 1H '19 in terms of EESL, or in the sense that at least the base, does it have significantly higher EESL revenue than 1H? Or does it have lower EESL revenues in the base year, which is FY '19?

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Sandeep Batra, Crompton Greaves Consumer Electricals Limited - CFO [13]

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Well, last year, EESL H1 was INR 62 crores, and H2 was INR 75 crores. They're not similar. I mean, INR 62, INR 75 crores, yes.

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Operator [14]

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Next question is from the line of Achal Lohade from JM Financial.

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Achal Lohade, JM Financial Institutional Securities Limited, Research Division - VP [15]

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You indicated that you've -- one of the reasons for gross margin expansion is also price increase. Would you be able to quantify which product and what kind of average price increase we have taken?

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Shantanu Khosla, Crompton Greaves Consumer Electricals Limited - MD & Executive Director [16]

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We -- roughly speaking, that's off the top of my head. It is -- the price increase was on -- largely on the Fans business. And it was roughly about a 2% increase.

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Achal Lohade, JM Financial Institutional Securities Limited, Research Division - VP [17]

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Understood. And sir, on the advertisement expense, can you quantify how much was the advertisement expense ESOP cost? And any one-offs in the -- like what we had in the first quarter, any provision or anything of that sort, even in the second quarter?

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Shantanu Khosla, Crompton Greaves Consumer Electricals Limited - MD & Executive Director [18]

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Of the advertising and sales promotion spend in this quarter has been INR 23 crores as compared to INR 9 crores in the same quarter last year. There are no one-offs of the nature of -- that were there in the first quarter. And some costs were same as it was in the first quarter, which was about INR 6 crores.

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Achal Lohade, JM Financial Institutional Securities Limited, Research Division - VP [19]

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Got it. And in terms of the volume growth, can you help us understand what has been the volume growth in case of premium fans and mass premium and also in case of comps, Agro and domestic?

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Shantanu Khosla, Crompton Greaves Consumer Electricals Limited - MD & Executive Director [20]

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Overall, for Fans volume it was close to double digit in terms of overall fans. In pumps, of course, the much better growth happened in Agro Pumps, where we have close to 17% growth. Residential comps did get impacted, as Shantanu mentioned, in the back end of the quarter, especially in East because of the flood situation. So that is why the domestic pump volume growth was lower in the quarter than in the previous quarter. That's primarily only because of the flood situation.

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Operator [21]

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The next question is from the line of Vinod Bansal from Franklin Templeton.

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Vinod Bansal, Franklin Templeton Investments Corp. - Assistant VP & Senior Research Analyst [22]

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Sticking with the Lighting business, we are referring to EESLs has been a major drag on our sales this year. I suppose you had the same reasons in Q2 '19 as well, where lighting fell 4% Y-o-Y, and we spoke about EESL being a drag. Could you spell out numbers on EESL again this quarter and the Q2 '19 quarter? What was the absolute number of EESL revenues?

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Sandeep Batra, Crompton Greaves Consumer Electricals Limited - CFO [23]

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Yes, it was INR 49 crores was last year, and this time is INR 19 crores.

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Vinod Bansal, Franklin Templeton Investments Corp. - Assistant VP & Senior Research Analyst [24]

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And how was your order book September 30 versus last year September?

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Sandeep Batra, Crompton Greaves Consumer Electricals Limited - CFO [25]

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The order book is strong. As I mentioned, almost INR 100 crores of order book. But how much of that will get translated in 1 quarter or the next 2 quarters, very difficult to say. But the order book is as strong as it was last year in terms of EESL.

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Vinod Bansal, Franklin Templeton Investments Corp. - Assistant VP & Senior Research Analyst [26]

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What is the reason for the delay in execution, then?

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Sandeep Batra, Crompton Greaves Consumer Electricals Limited - CFO [27]

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For years in the same?

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Vinod Bansal, Franklin Templeton Investments Corp. - Assistant VP & Senior Research Analyst [28]

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Yes.

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Sandeep Batra, Crompton Greaves Consumer Electricals Limited - CFO [29]

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I think quite a few of these orders got more awarded, I would say, towards the end of the quarter. That is one. Second, I think the fact is that last year, there was the bulk of the orders in quarter 2 was bulk where there was no installation involved. And this time, much bigger share of the orders is actually in same place, where there is a much longer period.

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Vinod Bansal, Franklin Templeton Investments Corp. - Assistant VP & Senior Research Analyst [30]

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So it's not exactly a dealing from the customer's part in terms of not wanting to refuse once they order. It is simply a long decision business now?

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Sandeep Batra, Crompton Greaves Consumer Electricals Limited - CFO [31]

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Yes. I mean, for us, it shifted more toward streetlights.

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Vinod Bansal, Franklin Templeton Investments Corp. - Assistant VP & Senior Research Analyst [32]

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We had an order -- saw a lighting order, which is supposed to be reviewed by early this year. I mean, might June or something. What's the status there? What's the particular order?

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Sandeep Batra, Crompton Greaves Consumer Electricals Limited - CFO [33]

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The initial order -- the execution has just started. So I would say the execution is, of course, while those plans should come in earlier this year because of elections and so on and so forth, there has been delay. And then we just started executing towards the back end of this quarter.

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Vinod Bansal, Franklin Templeton Investments Corp. - Assistant VP & Senior Research Analyst [34]

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Right. If I may just slip one more question on the Lighting business itself. I know you spoke about margins, not guiding specifically, I'd still like to ask your view on when do you see double-digit. Is it even possible now, given the fact that it's been disappointing for 4, 5 quarters in a row? Is there any hope that the next 4 quarters, if at all, you can hit a 10%-odd? And does hitting 10% require you to have a stronger double-digit growth in Lighting business?

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Shantanu Khosla, Crompton Greaves Consumer Electricals Limited - MD & Executive Director [35]

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To be honest, over the near-term of the next few quarters, our primary focus is to get market share and revenue growth, while keeping our gross margins intact. The EBITDA number for us over this period is less critical, whether it is a 5% or 6% or it's an 8% or 9% really is strategically less critical for us. And what is more critical is with the programs with B2B, with the innovation, with the advertising investment, get in a challenging market, get the top line growing and get our gross margins to stay.

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Vinod Bansal, Franklin Templeton Investments Corp. - Assistant VP & Senior Research Analyst [36]

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So where does the cost go, does it include the incremental cost of...

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Sandeep Batra, Crompton Greaves Consumer Electricals Limited - CFO [37]

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Cost reduction.

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Vinod Bansal, Franklin Templeton Investments Corp. - Assistant VP & Senior Research Analyst [38]

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No, no. If I may, sorry, you said sales will grow. Gross margin you said will stay. That means you'll have absolute higher gross profit. Where will the EBITDA margins and EBITDA we lost then?

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Sandeep Batra, Crompton Greaves Consumer Electricals Limited - CFO [39]

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So that should obviously give you some leverage on EBITDA, but the EBITDA number as such is not our focus.

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Operator [40]

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Our next question is from the line of Charanjit Singh from DSP.

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Charanjit Singh;DSP;Analyst, [41]

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Sir, on the Lighting front, we have been hearing about this pricing erosion consistently for the last 3 to 4 quarters and the quantum, which you had in this quarter also has been significant around 15%. So what level of this margin, because you been having the [tough pressures] the margin erosion will stop now any further because it has come to a level where nobody is making money. And still, we are seeing this erosion in the B2C segment significantly. So how do you see in the future that it's still some more room in here on the erosion side and the pricing?

And how do we see the scale-up in the B2B segment? Because we are continuously doing investments, do we see that these investments will actually help us improve our margin profile despite the competition being so intense in the segment?

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Shantanu Khosla, Crompton Greaves Consumer Electricals Limited - MD & Executive Director [42]

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Okay. Again, I would urge you not to get focused on Lighting EBITDA. Look at the company EBITDA, look at the buy category, top line and gross margin. Obviously, we are investing in Lighting for the future. This is a huge category with great long-term potential.

Also, to be clear, 5 years ago, in Lighting, we were making a low single-digit margin as a company. So it is not that we are investing so our margins that we are losing money on Lighting. The question we're really debating is between a 5%, 6% EBITDA and a 7%, 8% EBITDA. But our point of view is that really the focus we want to operate on is: drive revenue growth in Lighting, make sure that you are getting aggressive cost reductions so your gross margins are whole, then make sure you're finding the right investments, such as our B2B investments. And the leverage will fall out then on the segment EBITDA as it falls.

In terms of the B2B investment and the returns, like I mentioned, while a lot of our competition is actually flat to declining on B2B, we are seeing some results of these interventions. So B2B, actually, in this quarter, did grow, and it grew at high single digits.

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Operator [43]

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The next question is from the line of [Pavan Muklani] from SBI Mutual Fund.

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Unidentified Analyst, [44]

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Three questions from my side. One, on the Fans, you mentioned you have gained market share by 80 basis point, but your growth is 8%. And when I look at your peer performance, they've grown around 15% to 16%. So it will be helpful if you can explain. Second question is on...

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Shantanu Khosla, Crompton Greaves Consumer Electricals Limited - MD & Executive Director [45]

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Let me just take them one by one, so I don't forget. Let me take the first one. Fans market growth.

First, our source of data on market growth is Retail Pulse, which is third-party consumer offtake data. Second, when -- I'd just like to point out that the 14% to 15% growth, which I think you are referring to is not competitive Fans growth. It's competitive ECD growth. I obviously do not know, except based on my third-party data on what was the Fans growth. But everything that we know and believe is that, that Fans growth was nowhere near 14% to 15%. The Fans growth was probably, and this frankly is obviously our estimate based on detailed parts of competitive data closer to flat. And that 15% was driven by other newer segments. So -- right? And Fans is no longer the largest part of those other segments in the ECD business.

So there are some competitors, much smaller, who have reported results, who have also had good Fans growth. For example, Orient, driven by premium has had good Fans growth. And if you look at the Retail Pulse data, the 2 companies who are growing share are Orient and us.

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Unidentified Analyst, [46]

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Okay. Second, on the appliances, we've seen your rate of growth slow on the heater from more than 100%. Are they supply chain issue? And are they getting addressed?

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Sandeep Batra, Crompton Greaves Consumer Electricals Limited - CFO [47]

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No, no, no. I mean the 100% growth in the previous quarter was for air coolers. For water heater, we have been maintaining in the last few quarters, we have been maintaining growth between 30% to 40%. And that continues in the quarter we just reported as well.

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Unidentified Analyst, [48]

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So because from the channel. We understand there were supply chain issues. So I just want to know if these issues are there and are they getting addressed?

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Shantanu Khosla, Crompton Greaves Consumer Electricals Limited - MD & Executive Director [49]

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There was no -- there were some -- there were definitely supply chain issues on geysers. In the previous season, a large amount of those supply chain issues have been addressed going into this season.

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Unidentified Analyst, [50]

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Sure. And any color on when do you plan to launch the juicers or the next round of mixers and IN? And when do we start seeing growth in these categories?

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Shantanu Khosla, Crompton Greaves Consumer Electricals Limited - MD & Executive Director [51]

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We are beginning a program on mixers, starting this Diwali, like we began the program on geysers last winter. So this will be an ongoing continuing program. So it's not just sell for 1 quarter, and that's it.

Like our overall appliance story, for us, one of the most encouraging thing as a total subsegment, we are showing this kind of growth, obviously, driven by different parts of the subsegment depending on the season. Now consistently over the last 3, 4 quarters to get what we aspire to, which is to get on track to be a #2 in each subsegment, we need to continue this for about 6, 7, 8 more quarters at these levels of growth.

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Operator [52]

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(Operator Instructions) Next question is from the line of Shrinidhi Karlekar from HSBC.

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Shrinidhi Karlekar, HSBC, Research Division - Analyst [53]

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Just one question. So the EESL order backlog of INR 100 crores, you said. Is it typically a fixed price contract? Or are there some commodity cost pass-through that you have in contracts?

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Sandeep Batra, Crompton Greaves Consumer Electricals Limited - CFO [54]

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No, it's not -- it's for fixed -- it's all fixed price.

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Operator [55]

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Next question is from the line of Niket Shah from Motilal Oswal.

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Niket H. Shah, Motilal Oswal Asset Management Company Limited - VP & Associate Fund Manager [56]

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I have one question, primarily on the rating of Fans, which goes into implementation next year. Just wanted to get some sense on what's your preliminary thoughts on that in terms of how will the pricing change? Do you need to change the SQ design and specs? And does this give an opportunity for the unorganized market to come back? Because they are no star rating, so essentially, they can become one star and come back in competition with the organized guys. So some thoughts around that would be very helpful.

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Shantanu Khosla, Crompton Greaves Consumer Electricals Limited - MD & Executive Director [57]

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Okay. First, we will completely comply with the new regulations. Second, as a market leader in the Fans business, who are just about the only company which covers every price segment of the Fans business, we actually see it as an opportunity for ourselves to leverage in such a manner that we gain share. Number three, obviously, this will require us to redesign various elements of the Fan, work for which is, of course, well underway. And we're pretty clear for nearly all our segments, what is the new design, what are the specs, how it will be made, where it will be made.

Most of the work, which we've been doing, frankly, over the last 1 year on this program, is how do we bring down the premium of a more energy-efficient fan? And not just at the premium end of the fan, but also at the mid-tier of the Fans or even the lower-tier of the Fans. We have had a reasonable amount of success on that. There will be some premium, but we believe the premium will be at a level where it continues to be of value to the consumer, given the extent of energy saving.

The last point in terms of unorganized, I don't think this is an opportunity for an organized sector, right? Because, again, what this means is you've got to redesign, bring in the technology. It is not necessarily straightforward. So it actually makes it harder for the unorganized sector.

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Niket H. Shah, Motilal Oswal Asset Management Company Limited - VP & Associate Fund Manager [58]

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Sure. And in your early testing, have you seen any difference in the air delivery, which comes out? Because every SKU has to get retested. So on the air delivery side, have you seen any changes as such?

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Shantanu Khosla, Crompton Greaves Consumer Electricals Limited - MD & Executive Director [59]

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We have made our designs so that you do not drop the air delivery. That's a given constraint, obviously. If you -- and that is actually where our expertise and our technology comes into play because we believe we have the best knowledge and design capability, especially on the aspect of delivery. So that part of the area, we believe that this is going to help us get a competitive edge.

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Operator [60]

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

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Renu Baid, IIFL Research - VP [61]

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I'll ask a few questions. So just a clarification, the price erosion, which you've mentioned on the LED side. Was it 15% on a sequential basis or a Y-o-Y basis?

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Sandeep Batra, Crompton Greaves Consumer Electricals Limited - CFO [62]

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15% Y-o-Y.

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Renu Baid, IIFL Research - VP [63]

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So last year, if you remember, last year, 2Q all the quarter when we had first seen the sharp correction of nearly similar 15%, 20% on the B2B bulb -- the LED bulb side. So on that base of lower realizations, you've seen a further drop of 15%, like am I right?

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Sandeep Batra, Crompton Greaves Consumer Electricals Limited - CFO [64]

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Yes.

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Renu Baid, IIFL Research - VP [65]

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Or is it more?

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Sandeep Batra, Crompton Greaves Consumer Electricals Limited - CFO [66]

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Yes. That is correct.

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Renu Baid, IIFL Research - VP [67]

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Okay. And related to this, so this kind of structural erosion that we are seeing year-on-year, you mentioned there are fringe players as well as large players. So in your view, is it largely -- since it's not driven by the manufacturing cost structure, you think? Or this disruption is also likely because of increased our share of more outsourced manufacturing to OEMs who have become too large inside driving this kind of price operational cost reductions?

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Sandeep Batra, Crompton Greaves Consumer Electricals Limited - CFO [68]

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Not really, Renu, because it's being driven by -- at different times, it's being driven by different types of players. So all types of players at different times have driven this. What I believe is that this is unsustainable over the midterm. And at some point in time, there will be a shakeout like there tends to be in any industry when there's a dramatic transformation, huge growth. Many, many people come in to it. And then it stabilizes over time and a lot of the players fall out, and key long-term players remain.

And we're going through that kind of cycle. Which is why for us, it is so important to win through that cycle. And for us, winning is really defined as growing the top line, growing share and making sure that our gross margins don't get eroded. And we're driving costs down to support the pricing required.

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Operator [69]

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The next question is from the line of Deepak Krishnan from Goldman Sachs.

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Pulkit Patni, Goldman Sachs Group Inc., Research Division - Equity Analyst [70]

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This is Pulkit. Am I audible, sir?

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Sandeep Batra, Crompton Greaves Consumer Electricals Limited - CFO [71]

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Yes, you are. Go ahead, Pulkit.

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Pulkit Patni, Goldman Sachs Group Inc., Research Division - Equity Analyst [72]

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Okay. So my question is on your advertisement costs, I remember in last year, what typically used to happen was in a quarter where we would see a slowdown, we would significantly lower our advertisement cost. Now this time around, clearly, the commentary that is respective of whatever we are seeing in the market right now, we are going to continue to invest in brands. I just wanted to understand why the change in thought process? And if you could just clarify on this.

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Shantanu Khosla, Crompton Greaves Consumer Electricals Limited - MD & Executive Director [73]

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Because we continue to believe that investing -- and in fact, when we cut advertising in the past, we saw an impact of it over the long term. So we're clear, we must maintain our investment.

Again, I'd like to remind you that in spite of the challenging times, in spite of the competitive situation on Lighting, as a company, in spite of making these investments, our PBT margin continues to move in the right direction and is among the highest, if not highest in the company. So it doesn't really make sense for me to make short-term cuts. To drive that PBT margin as a company, even higher, it is more sensible for us to invest and keep investing so that we emerge in an even stronger position from a market share point of view where this hyper-competitive situation ends. It would be very different if, for example, we were only a Lighting company. But we're not only a Lighting company. We're a consumer electrical company, with strong, profitable, growing margins.

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Pulkit Patni, Goldman Sachs Group Inc., Research Division - Equity Analyst [74]

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Fair point, sir. So my second question would be -- we have been talking about looking at inorganic opportunities. Now given that our balance sheet will look a lot better by now, given the bulk of the debt is already repaid, I just wanted to understand any progress on that front and anything that you can share at this stage?

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Shantanu Khosla, Crompton Greaves Consumer Electricals Limited - MD & Executive Director [75]

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We are continuing, as we always have. We have discussions, we have evaluations. The things are moving a lot of various proposals and options, but we have nothing on that to share. Where we are in a position to share, you guys will be the first to know.

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Operator [76]

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The next question is from the line of Mayur Patel from IIFL.

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Mayur Patel, IIFL Asset Management Limited - Principal & Fund Manager of Listed Equity [77]

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So you rightly highlighted all the concerns in the Lighting market and whatever you are doing in terms of cost reductions and maintaining gross margins. So just want to understand that, given there are so many competitive pressures in the market, don't -- shouldn't we just think of diversifying more away from this challenging business and put more energy towards lighting fixtures or other new segments? Or we should just ride through this rough patch and you think the normalcy would be achieved soon?

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Shantanu Khosla, Crompton Greaves Consumer Electricals Limited - MD & Executive Director [78]

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Well, within Lighting, that is exactly what you're suggesting is what we are doing, which is putting much more investment in segments where we were not focused on earlier. And one of the biggest examples of that is obviously B2B business, where we are building these capabilities, so we can get into segments such as commercial, where we're relatively weak.

Street Light is an ideal strength, but we are putting investments so we can get into connected streetlights, et cetera. So driving off the whole B2B segment is really all about what you call fixtures and fittings but even beyond that. So yes, our focus is now much more in Lighting than on just bulbs. Even on the B2C part of the business, if you notice, we are getting much stronger growth even in this current environment. Not on the bulbs, which is where a lot of the hyper competition tends to be, but on the back ends and panels, where the volumes this quarter grew about 35%. So there are lots of segments within Lighting, which we're currently investing in to sustain the growth, which we were not investing in or focused in to that extent, 1 year, 1.5 year ago.

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Operator [79]

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We'll move to the next question, which is from the line of Rahul Gajare from Haitong Securities.

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Rahul Gajare, Haitong International Research Limited - Research Analyst [80]

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So now in a scenario where this company is known for bringing out new innovative products to the market and obviously, it takes time to bring out such innovative products to the market, what happens is competition doesn't take much time to really replicate these kind of products? Is there any way you can actually elongate that period where competition would not be able to replicate this immediately? That is one.

And similarly, I mean, is there any way you're tracking the new innovative product that you're launching in terms of the growth numbers?

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Shantanu Khosla, Crompton Greaves Consumer Electricals Limited - MD & Executive Director [81]

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The answer to the second question is, obviously, yes. We actually have a scorecard, which we report to our Board of Directors. And one of the elements of the scorecard, which we report to the Board of Directors, is percentage of incremental business, which has come from new products. So of course, we track it, and it's a very important thing to track. So because it's not just launch and forget about it, you keep driving this business over multiple quarters and years.

On the first one, there are many things you can do. And I think the best example is one of our first, which is the anti-dust Fans. Obviously, you try and pay and protect whatever you can. In India, sometimes, lots of reasons that we are not technically possible to protect with the patent. Then what you do is you look for areas such as supplier agreements. For example, in anti-dust, which we have on the unique footing we use.

But then most important is get in and invest in marketing and distribution. Today, nearly every competitive company launched an anti-dust. However, today, I don't know the number, but I'm kind of guessing that out of the anti-dust segment, profit is 95%-plus. Not just us. I'll give you another example from competition.

Orient launched the plastic fan, a good product, invested in it. It's been a big driver from what I read about their premium fan growth. Havells launched a plastic fan. Basically doesn't sell at all, right? So there is a consumer trial investment kind of moat you also build over time.

The last answer to your question is it does not last forever. You've got to bring the next innovation in probably 12 months later.

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Operator [82]

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Next question is from the line of Tanuj Mukhija from Bank of America.

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Tanuj Mukhija, BofA Merrill Lynch, Research Division - Associate [83]

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Firstly, can you tell me what is the addressable market share for mixer-grinders? And what is counted consumers target in this segment over the next couple of years?

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Shantanu Khosla, Crompton Greaves Consumer Electricals Limited - MD & Executive Director [84]

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Our target for each of these just like we set up first for Lighting, then for coolers and for geysers is we want to in each subsegment, have a program, which we are confident that over the midterm can make us, at least on track, if not having achieved a #2 share position in that segment.

It is something attractive, which we achieved on Lighting. Because when we started our program on Lighting, we were the number 6, 7, 8. And now we're #2 or very close #3, depending on whose numbers you look at. That's what we're aiming to achieve on coolers, and we're on track. That's what we're aiming to achieve on geysers, and initial quarters are on track. That is what you will able to do among mixer-grinder.

Why this? Very simple reason, if you are #6, 7 or 8 in any subsegment, you are not creating value. You only create value if you are #1, 2 or sometimes 3 in the segment.

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Operator [85]

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Next question is from the line of [Padimna Singhania] from Andersen Capital.

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Unidentified Analyst, [86]

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Yes. Congratulations on a good set of number, given the competitive environment. So my simple question is that can you share some -- your either your 3-year or 5-year plan? Considering that you are getting delevered considerably, what kind of investment that you can do so that we can get some kind of visibility of whether you can double your revenue over a 5-year period?

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Shantanu Khosla, Crompton Greaves Consumer Electricals Limited - MD & Executive Director [87]

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Okay. Our objectives in terms of our goals actually remain exactly the same as we set out 4, 5 years ago: grow faster than the market, gross margin at least at the same rate as top line and convert most of our profit into cash. These are our forecasts.

Now the last thing I will mention is -- given the strength of our brand and our balance sheet, our limitations are not really about ability of money to spend. Our limitations and -- are actually to create something which will go out and win. The number of cases in our industry where people have gone and put money in things which has never created value. We see that happening in front of us every day.

So the challenge is not that I don't have debt so I can raise debt and therefore, I have money to invest. The challenge is do I have a plan and a proposition to become a #2 in that segment? Which is why we are doing it very focused and sequentially. We started with lighting. We've now moved to cooler, we move to geysers, and now we're moving to small appliances. Yes, over time, there will be a 5th and the 6th, which we need to add, which we will -- are working on appropriately.

But the limitation for us is not a financial ability to invest. We have seen lots of investments, which are essentially gone out to you for lots of people. Okay.

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Operator [88]

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The next question is from the line of Ansuman Deb from ICICI Securities.

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Ansuman Deb, ICICI Securities Limited, Research Division - Aviation Analyst [89]

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Sir, I had one question, and I think the EESL business, we have heard about the receivables problems in terms of long receivables in EESL. We also provided for some amount in the last year. Would you throw some light on that thing? In case the order picks up in EESL, do you still have receivable problems? And what is the situation in that area?

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Sandeep Batra, Crompton Greaves Consumer Electricals Limited - CFO [90]

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So currently, we do have a receivable challenge with the EESL, where I think they probably have some short-term mismatch in cash. But that is not really -- I mean, other than the fact that it -- because of the provisioning norms, it does result in some amount of P&L hit. That's not really a showstopper for us. We believe that given the financial health of EESL, money will come. That is not something that is going to decide whether we will supply the sell orders or not.

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Ansuman Deb, ICICI Securities Limited, Research Division - Aviation Analyst [91]

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Okay. So we might provide and also supply?

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Sandeep Batra, Crompton Greaves Consumer Electricals Limited - CFO [92]

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Yes, that's okay. Yes. Providing is at, it's not -- you're not providing thinking that EESL will incur bad debt. The new accounting standard requires you to provide for every debt versus the hedging of the debt, and we've been following the new accounting standard to the T.

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Ansuman Deb, ICICI Securities Limited, Research Division - Aviation Analyst [93]

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Right. And sir, one follow-up question in Lighting, which was regarding the margins. So in -- for example, in Philips, we see that the annual margins in FY '19 was close to double digit. And they also paid some royalty to their parent company. So how does this differential in margin work out for us versus Philips? If I have to just see that.

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Sandeep Batra, Crompton Greaves Consumer Electricals Limited - CFO [94]

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I think it's a question of scale. If you look at the last 2 quarters, the gross margin today, actually, if we look at the Lighting gross margin versus the same period last year, we had better. But obviously, it's also got to do with top line growth, which is why it's very important, as Shantanu mentioned, to get growth back because then everything will fall in place, we have 20%-plus gross margin and close to double-digit top line growth. Our bottom line will flow through automatically.

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Operator [95]

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Thank you. Ladies and gentlemen, that was the last question for today due to time constraints. I now hand the conference over to the management for closing remarks. Over to you.

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Shantanu Khosla, Crompton Greaves Consumer Electricals Limited - MD & Executive Director [96]

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Thank you. Hopefully, we were able to answer most of your questions. Appreciate you dialing in. As always, we're here to help them clarify. So if any of you've got any more questions, just please contact the management, and we're happy to take on -- take them on. Thank you.

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Sandeep Batra, Crompton Greaves Consumer Electricals Limited - CFO [97]

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Thank you.

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Operator [98]

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Thank you very much, members of management.