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Edited Transcript of IFBIND.NSE earnings conference call or presentation 2-Aug-19 6:30am GMT

Q1 2020 IFB Industries Ltd Earnings Call

Aug 9, 2019 (Thomson StreetEvents) -- Edited Transcript of IFB Industries Ltd earnings conference call or presentation Friday, August 2, 2019 at 6:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Arup Das

IFB Industries Limited - Head of Marketing - Engineering Division

* Prabir Chatterjee

IFB Industries Limited - CFO & Executive Director

* Rajshankar Ray

IFB Industries Limited - CEO of Home Appliances Division

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Conference Call Participants

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* Chirag Muchhala

Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst

* Harshil Shah

Anvil Share and Stock Broking Private Limited - Research Analyst

* Khadija Mantri

Religare Enterprises Limited - Research Analyst

* Kunal Bhatia

Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Research Analyst

* Manoj Gori

Equirus Securities Private Limited, Research Division - Associate

* Romil Jain

Systematix Shares & Stocks (I) Ltd. - Assistant VP - PMS

* Sonali Salgaonkar

Jefferies LLC, Research Division - Equity Analyst

* Tarang Bhanushali

Yes Securities (India) Limited - SVP

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the IFB Industries Limited Q1 FY '20 Earnings Conference Call hosted by Nirmal Bang Equities Private Limited. (Operator Instructions) Please note, this conference is being recorded.

I now hand the conference over to Mr. Chirag Muchhala from Nirmal Bang Equities. Thank you, and over to you, sir.

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Chirag Muchhala, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [2]

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Yes. Thank you, Vikram. On behalf of Nirmal Bang Equities, we welcome you all to the Q1 FY '20 Results Conference call of IFB Industries. The management is represented by Mr. Prabir Chatterjee, Director and CFO; Mr. Rajshankar Ray, CEO, Home Appliance Division; and Mr. Arup Das, Head Marketing, Engineering Division.

I now hand over the call to the management for their opening remarks, post which we can take questions. Over to you, sir.

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [3]

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Good afternoon, and thank you, Chirag. Welcome to everybody for our first quarter con call. The company has reported a total income of INR 676.78 crores with a growth of 13.8% over the corresponding quarter of the previous year.

The EBITDA before exceptional gain margin stood at 4.6% compared to 5.8% last year. In absolute terms, which is INR 31.26 crores, marginally lower than last -- same quarter last year. However, if you compare with the fourth quarter, when it was INR 21.58 crore, it is substantially higher.

However, generally, the consumer sentiment was not up to our expectation. But we could be -- tied over the difficult period that we've said fourth quarter in a large extent in terms of micro oven and other product. AC, still there are issues, and we are going with full -- this thing full starts to do the AC manufacturing plant, which supposed to start in the first quarter of 2020, '21. With this, I will request you to start the question-answer session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have our first question from the line of Sonali Salgaonkar from Jefferies.

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Sonali Salgaonkar, Jefferies LLC, Research Division - Equity Analyst [2]

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Sir, my question is pertaining to the industry. How do you view the current demand scenario in the industry? And most of the companies are coming out with a commentary that probably there will be green shoots, which emerge in H2 FY '20. Do we echo the same sentiment?

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [3]

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I will request Mr. Ray to answer to this question, please?

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [4]

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Yes. So this Rajshankar here. As far as we are concerned, we don't see any specific actions, which will create green shoots which are distinct from what are as on date. So if you look at consumer durables per se, then the levers for sales growth are normally in areas of distribution expansion in terms of consumer finance and overall the consumer sentiment. So as far as consumer finance and distribution-related issues are concerned, overall for the industry, we expect them to be the same going forward.

As far as consumer sentiment is concerned, there is obviously a better consumer sentiment whenever the season is around. Just typically, the period starting Onam in September from Kerala, going up to the end of Diwali and the New Year related sales which could will go until about, let's say, mid-January. So we expect they're continuing to be positive, but we don't think there are any specific accelerated process in terms of new green shoots et cetera. Does that answer your question?

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Sonali Salgaonkar, Jefferies LLC, Research Division - Equity Analyst [5]

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Yes, sir, largely. Sir, coming to the festive season point that you just made. Now considering that you know the current quarter or probably the first half of this fiscal is not up to the mark in terms of demand for most durables. Would it be possible for you to give us any approximate line of action as to how you want to enter this festive season as in in terms of higher offers or probably discounting to push in the volumes? Or any sort of strategy that we have envisaged?

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [6]

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So our strategy for and let's say, the coming season is exactly the same as what we had shared earlier, which is primarily on 2 levers. One is ensuring that we make our distribution and account level strategy as effective as possible. So we have shared earlier that we have a very large network. We are not happy with the extraction that we're getting. So in terms of streamlining the sales growth effectiveness to get more extraction, we believe that is the largest lever for growth that we have. And that is exactly what we will pursue in the second and third quarter as well.

And then the second is related to the introduction of new models, which have better aesthetics, better consumer peak levels. The margin profile of them is going to be better than the models that they're replacing. So that action, we have started mid-fourth quarter. And that is now fully online and it will only give more benefits in the second quarter. So these are the 2 main strategies that we have, which we have shared earlier as well. As far as additional discounts, et cetera, concern, no, we will not be pursuing that route. We have not done it before as well. And that is not a growth strategy that we have.

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Sonali Salgaonkar, Jefferies LLC, Research Division - Equity Analyst [7]

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Sure. Sir, in terms of competitive intensity. If I compare this current period versus the period that we saw a year back. Within this time frame, there have been many players who have introduced, who have rather if entered into consumer durables or introduced new categories. Are you seeing any visible signs of competition becoming really strong and probably competitors cutting into each others market shares?

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [8]

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So if you look at competitive intensity, our -- our position is that it remains largely the same. In terms of new players you have media, which has increased its presence over the last 1 year, largely through an online marketplace. You have Voltas and Beko which have started introducing products in the washers and refrigerator space. You have players like TCL who has entered the segment of television, et cetera. As far as IFB is concerned, these introductions are largely at price points, which are much lower than IFB -- than the price points that IFB currently occupied. We don't see any change in competitive intensity as far as our plans are concerned.

As far as the market is concerned, yes, there are another 2, 3 more players in -- they will be looking to expand their physical presence across the distribution network. And that will happen as it happens. We don't see any effect as far as our sales strategy or growth plans are concerned.

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Sonali Salgaonkar, Jefferies LLC, Research Division - Equity Analyst [9]

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Sure. Sir, and lastly, could you please share the approximate market share that we enjoy in the categories that we are present in?

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [10]

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So as far as front loaders are concerned, we are at around 40%. These are internal estimates because external data is not reliable. In top loaders, in the fully automatic segment, we are at about 8.5%, 9%. In microwaves, we are currently at 22% to 23%. In air conditioners, we are still very small so I think, 1%, 1.5%, 2% maximum.

If you look at categories like dryer and dishwashers, we have dominant share, so we'll be about 40%, 45% on dishwashers and about 70-odd percent on clothes dryer.

As far as our industrial product range is concerned, there also we have dominant share, but those shares are mostly by value. So in industrial laundry we will be around 45%, 40% share by value. Industrial dish washing, we would be around similar levels of 35%, 40% by that date.

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Sonali Salgaonkar, Jefferies LLC, Research Division - Equity Analyst [11]

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Got it. Sir, the earlier numbers were from volumes, right, for durables? Volume market share?

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [12]

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Yes.

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Operator [13]

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(Operator Instructions) We have next question from the line of Kunal Bhatia from Dalal & Broacha.

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Kunal Bhatia, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Research Analyst [14]

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I believe I would have joined a bit late. Sir, just wanted to know in terms of your -- this time in Q1, what was the trading portfolio as an overall percentage because we had already warned in Q4 that the trading portfolio in Q1 would be high. That's why the margins will remain subdued. So I just wanted to know, raw mat at 59.7. When do we see that coming off?

And secondly, what was the -- in terms of the localization, if you could share that additional recent numbers.

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [15]

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So yes, your first point was what was the share of the imports. Did I get that right? The first part of the question.

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Kunal Bhatia, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Research Analyst [16]

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Trading portfolio in our business this quarter.

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [17]

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So trading portfolio, which we also put in the investor presentation in Q1. Air conditioners accounted for 25.5% by value and microwaves at 7.5%. So if you put both together, about 33% is imports. Then you have dishwashers at 2% and -- that makes it about 35%. And if you add in categories like kitchens, et cetera -- adding the kitchen appliances then around 36%, 37% is the imports.

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Kunal Bhatia, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Research Analyst [18]

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Sir, and secondly, what will be the localization level reached in case of top loaders?

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [19]

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So the localization, I mean, the imports, as far as the top loader category is concerned, is currently at a level of 35% to 40%. And the biggest component in that is the motor, basically, which over the next 1 year will also be localized. So going forward, we would expect the top loader import percentage to be sitting at about 25-odd percent. As far as front loads are concerned, the localization, I mean, the import percentage is around 20% to 25% and that will stabilize at around 20-odd percent.

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Kunal Bhatia, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Research Analyst [20]

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Sir, you stabilize at around?

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [21]

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Around 20-odd percent.

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Kunal Bhatia, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Research Analyst [22]

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Okay. And sir, in case of top load, have you started with the 6 kg, which we were mentioning? And what kind of numbers we did for 6 kg in top load?

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [23]

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We have not introduced the 6 kg yet, and it has been tested and is ready. And looking at the season demands and the capacity plan, we will decide how to introduce it in the second quarter, essentially. So we might do it just after the season, looking at capacity requirements. That is something that we are just internally evaluating currently.

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Kunal Bhatia, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Research Analyst [24]

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Okay. Okay. And sir, how much was the ForEx loss this quarter vis-à-vis last year?

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [25]

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Because we do not have any ForEx loss, if any. ForEx because now it is around INR 68.6, INR 68.9, which is much lower than earlier period. And -- we are totaling hedged also. The impact of ForEx this quarter compared to last quarter is not there actually. It is favorable.

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Kunal Bhatia, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Research Analyst [26]

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Sir, last year, it was how much, sir?

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [27]

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It was average. It was around 70.3, 70.2. Whole year, if you take. Year before, it was 65.5.

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Kunal Bhatia, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Research Analyst [28]

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Okay. Okay. And sir, in terms of our EBITDA margins for FY '20, what would be a reasonable range we could work with?

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [29]

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We cannot give any guidance on that as such. This year, like we said that we're taking multiple step view. You can see there is some improvements in margin especially in terms of -- micro oven position has improved, in terms of the actions that we said last time, in terms of -- we make some price revision as well as negotiation with the vendors. In case of the other products, we did some price increase. Let's say in May, for the front loaders and other product. On that also, we have gained some gains. Recovered some. But in terms of the AC, you have to wait for our manufacturing to start.

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Kunal Bhatia, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Research Analyst [30]

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Okay. Okay. And sir, anything you would want to allude on the other expenses, which was...

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [31]

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Other expense, if you see, compared to last quarter and the quarter before increase is only 3% and the -- out of the total operate -- other expenses, 75% to 76% is variable. For example, service expenses, which is related with the warranty. Around 25% is actually fixed, rent and other things. Here also rent increase whatever has happened, that is because of the new opening of IFB CoCo stores. Otherwise, other operating expenses were absolutely in control. You can compare to that last -- compare to the last quarter as well as quarter before, it is around 3%, which is hardly anything.

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Kunal Bhatia, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Research Analyst [32]

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Okay. Okay. So this is the range we could assume going forward as well?

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [33]

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Yes. We are keeping other expenses under total control. And in terms of the new CoCo stores where rent expenses would be there, but they are self-liquidating type, but it will take some 3, 4 months to stabilize and then we recover the cost and margin.

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Kunal Bhatia, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Research Analyst [34]

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Okay. Sir, and finally, on -- in terms of -- our finance cost this time was about 57% higher. So is it related to Ind AS? Or what was the reason for the same?

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [35]

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Finance cost is actually the -- it is lower than the last year -- comparing with the last. See out of that INR 171 lakhs, if you see, out of that, you have Ind AS effect of INR 68 lakhs, which is provision. On the warranty and the actuarial issues. But if you'll see the other income, the increase that we have in -- actually earned. Overall interest, we are positive by INR 36 lakhs.

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Kunal Bhatia, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Research Analyst [36]

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Okay. And sir, how has been -- current quarter, what percentage of sales are via financing? And final question is, how is the July month compared to June month? And that's it for me.

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [37]

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It's around 23%, 24%.

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Kunal Bhatia, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Research Analyst [38]

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23%, 24%. And has that improved or come down on a Y-o-Y basis?

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [39]

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More or less same, but it always -- in the current situation, financing is becoming very popular. So that is essential and it adds to the ad hoc sales as well as it increases our contribution also. Incremental contribution compared to the cost cutting.

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Kunal Bhatia, Dalal & Broacha Stock Broking Pvt Ltd., Research Division - Research Analyst [40]

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Okay. Okay. And sir, how has been the situation say, in July versus June in terms of either on inventory or have the things improved or...

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [41]

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The inventory -- see inventory, in terms of the AC has come down considerably. But again, since the season is approaching, we need to build up stocks now. So with our manufacturing capacity, although it is augmented compared to earlier years, even then the seasonal sales that happened in September, October, you need to build up some stocks for the manufacturing products.

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Operator [42]

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(Operator Instructions) We have a next question from the line of Tarang Bhanushali from Yes Securities.

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Tarang Bhanushali, Yes Securities (India) Limited - SVP [43]

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Sir, you mentioned that on the AC front, we are setting up new capacity. So for how much units are we setting up? And do we do -- are we planning to just have an ancillary unit of -- or are we going on the backward integration point which is...

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [44]

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Yes. So Rajshankar here. The capacity planning for the air conditioning plant is 600,000 per annum. But this will be done in 2 phases. So in the first phase, this will be around 400,000 per annum. And in the second phase 600,000 per annum. We are not looking at simple ancillary operations, we are looking at a considerable amount of value addition in-house. So across condensers, evaporators, sheet metal forming, everything will be done in-house. And the complete supply chain in terms of plastics, et cetera, will be in Goa from Bay #1.

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Tarang Bhanushali, Yes Securities (India) Limited - SVP [45]

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Okay. So what will be the total CapEx for this whole plan, so including both the phases?

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [46]

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Yes. So the Phase 1 CapEx is INR 140 crores to INR 150 crores, which we have shared earlier. And Phase 2 CapEx will be spread out over the years, depending on the way the growth goes up basically. But those are very incremental, very small CapExs. So Phase 1 CapEx, which we've already shared is INR 140 crores, INR 150 crores.

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Tarang Bhanushali, Yes Securities (India) Limited - SVP [47]

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Okay. And till date, how much have you spent on this?

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [48]

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Mr. Chatterjee, would you like to share that?

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [49]

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We have spent around -- other than land, we have spent around INR 16 crores, INR 17 crores.

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Operator [50]

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(Operator Instructions) We have next question from the line of Harshil Shah from Anvil Research.

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Harshil Shah, Anvil Share and Stock Broking Private Limited - Research Analyst [51]

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Sir, one question from the annual report, sir. Stores, spares and tools expenses is going up every year, sir like -- what is that expense like?

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [52]

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This is related to the because -- this is mostly because of the warranty, AMC and other expenses. Number of the population -- total populations of machine going up. It will increase.

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Harshil Shah, Anvil Share and Stock Broking Private Limited - Research Analyst [53]

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Sure. All warranty expenses are included in stores, spares and tools?

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [54]

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Yes. The one -- the twist, there are other stores expenses also, which is nothing. Miniscule. Main expenses are on the basis of warranty. We give 4 year warranty after that. And then the washing machine manufacturing products as well as we have our...

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Harshil Shah, Anvil Share and Stock Broking Private Limited - Research Analyst [55]

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If we see our annual maintenance income is around INR 64 crores, AMC. And this expense is around INR 120 crores, sir.

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [56]

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That is -- the AMC is what you earn and -- we get the earnings for that and this thing, but the warranty is free.

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Harshil Shah, Anvil Share and Stock Broking Private Limited - Research Analyst [57]

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Warranty is free.

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [58]

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Warranty is only expense because...

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Harshil Shah, Anvil Share and Stock Broking Private Limited - Research Analyst [59]

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Warranty is for like how much? For 1 year, 2 year, warranty how...

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [60]

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It is 4 years warranty.

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Harshil Shah, Anvil Share and Stock Broking Private Limited - Research Analyst [61]

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Three years warranty?

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [62]

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Four years.

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Harshil Shah, Anvil Share and Stock Broking Private Limited - Research Analyst [63]

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Four years warranty.

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [64]

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For the finished goods, like washing -- manufacturing products.

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Harshil Shah, Anvil Share and Stock Broking Private Limited - Research Analyst [65]

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Sure. Like -- so if I am a first-time buyer, right, I'll get 4-year warranty from the company?

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [66]

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Yes. And that is free because there are people who give motor warranty and others but then we give for all components.

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Harshil Shah, Anvil Share and Stock Broking Private Limited - Research Analyst [67]

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All components, okay.

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [68]

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All components, labor charge, everything together.

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Operator [69]

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(Operator Instructions) We have a next question from the line of Chirag Muchhala from Nirmal Bang.

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Chirag Muchhala, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [70]

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Sir, on the washing machine side, what was the industry growth in the Q1? And is it possible to -- I mean, share a outlook on the industry that is likely to grow in the -- for the full year FY '20?

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [71]

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So Chirag, Rajshankar here. We don't have -- we don't have accurate figures, but our estimate is that in Q1, the industry has been flat. Based on the internal information. However, in Q1, generally washers growth is subdued and the main growths come from Q2, Q3. So as far as the industry growth is concerned, I would expect that Q2, Q3 would be as expected.

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Chirag Muchhala, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [72]

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Okay. And sir, you had mentioned that there were some price hikes taken in certain products. So is it possible to quantify which products and to what extent?

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [73]

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So the price increases that we have taken have been across all the categories. So in imports, we took price increases in line with what we have shared earlier based on the ForEx and duties-related impact. Those price increases are already done. In manufactured products like washers and dryers also, we have already taken price increases. The range of the price increases would be between 2% to 5% based on the category of the model.

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Chirag Muchhala, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [74]

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Okay. Now sir, in the AC, which is a imported product for us. So actually, this quarter, we have posted quite a -- I mean healthy growth of 40%. And so this product continues to be fully imported on CBU basis, right sir? Or we are right now, not even getting it assembled from any domestic companies.

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [75]

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No. It is completely a CBU import now.

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Chirag Muchhala, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [76]

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Okay. So basically, the entire 20% import duties is getting levered on it, right?

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [77]

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Yes, correct. And that has been the big problem that we had. So since the duty increased, we have had a very significant financial impact. And -- but the decision that we took is to continue to expand the distribution and our presence because for us, once the localization project is complete and this will be a very -- a very significant revenue and margin driver for us but yes, you're right. Currently, the duty impact is on the entire air conditioner.

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Chirag Muchhala, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [78]

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Yes. So sir, in that case, was that -- is that product as of this moment, profitable for us, considering that it's a full duty and that is a segment which has actually driven the growth in the home appliances segment in Q1?

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [79]

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Yes. So it's not profitable for us currently.

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Chirag Muchhala, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [80]

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Okay. And more or less sir, and for the entire FY '20 that is likely to be the scenario, right, before the production starts in the plant?

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [81]

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Yes. So what will happen is that the price increases that we took, which would have complete impact in the remaining quarters of the year. We'll reduce the impact to an extent. And in Q4, we will have a mix of manufactured and imports at play. Q2, Q3 are in any case quarters in which the volumes of air conditioners are not very heavy. So the Q4 will be a mix and then Q1 onwards, then it is significantly manufacturing, or 100% manufacturing by the end of Q1.

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Chirag Muchhala, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [82]

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Okay. Sir, out of our total retail touch points, in how many touch points we also sell ACs?

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [83]

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So in this season, air conditioners reached about 2,700-odd touch points. And our total touch points are around 10,500 to 11,000.

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Chirag Muchhala, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [84]

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Okay. And sir, top load is being sold everywhere, right, in all 11,000?

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [85]

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No. Top load is also lesser. Out of the -- which is something that we've shared in the previous teleconference as well that out of the total 10,500, 11,000, our total top loaders placement would be about 5,500, 6,000. But in terms of accounts that be with us regularly that number is around 2,500. So the headroom for growth in that segment is to have more accounts billing with us regularly and also expand the reach of the top loaders.

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Chirag Muchhala, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [86]

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Right, sir. Sir, final 2 questions. Sir, on the IFB Points side, so how many stores we have now? And what is the plan for this fiscal year?

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [87]

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So we have 535 IFB Points as of now. And the plan for this fiscal year is on 2 fronts, is to focus on the profitability of the stores as the priority one. So that will come from increasing footfalls, ensuring that conversions shows rise et cetera. So the primary target is the profitability of the stores. We expect to have a figure of about 600 IFB Points that we have internally set as a figure for this year.

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Chirag Muchhala, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [88]

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Okay. And lastly, sir, is it possible to give the breakup of revenue in the distribution network in the sense of IFB Point, multi-brand retail outlets and e-commerce for Q1?

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [89]

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Yes. Yes. I'll just tell you. For this quarter, e-commerce is around -- and IFB points is around 16%.

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Chirag Muchhala, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [90]

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Okay. Sir, e-commerce you've mentioned is?

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [91]

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9%.

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Chirag Muchhala, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [92]

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9%. Okay. And sir, the multi-brand retail outlets?

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [93]

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Large format is around 9%.

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Operator [94]

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(Operator Instructions) We have next question from the line of Tarang Bhanushali from Yes Securities.

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Tarang Bhanushali, Yes Securities (India) Limited - SVP [95]

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Sir, you just mentioned on the AC part, we registered 40% Y-o-Y growth. This is right, sir?

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [96]

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Yes.

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Tarang Bhanushali, Yes Securities (India) Limited - SVP [97]

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Sir, and what would be the industry growth this quarter?

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [98]

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See we don't have an accurate estimate of the industry growth because the industry has inventory pile up and then inventory moves and there is a tremendous phase difference, which is not so in our case. From whatever I have heard from people, the figure varies from between 10% to 20%.

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Tarang Bhanushali, Yes Securities (India) Limited - SVP [99]

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Okay. And sir, you mentioned we have taken price hikes across all products. So was it AC also in that? Because what we hear from the Street is that the MNCs had lowered the prices for ACs on a sequential basis. So what was our realization this quarter?

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [100]

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Yes. So we have increased prices. As we had shared details, the impact of the higher ForEx level compared to previous years as well as the import duty was a significant impact for us. So we had partial price increases, not the entire impact, but a partial part of the impact. And your information that the MNC has reduced price this season is right. So the industry had a very heavy inventory pile up as of December, January '18 and Jan '19. So in this season, many of the players had actually dropped prices. We personally feel it was a short-term strategy because that is not sustainable based on our understanding going forward.

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Tarang Bhanushali, Yes Securities (India) Limited - SVP [101]

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And sir, we also hear that many of these companies are now looking at setting up bases in India. And there are more OEM players and ODM players. So why are we not looking at those players to outsourcing the interim -- our plant is ready.

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [102]

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Yes. So this point is a good point, and we are evaluating this. In terms of ensuring capacity utilization for the factory that we are building, we will be evaluating this point.

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Operator [103]

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(Operator Instructions) We have a next question from the line of Romil Jain from Systematiix Shares & Stocks.

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Romil Jain, Systematix Shares & Stocks (I) Ltd. - Assistant VP - PMS [104]

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Sir, if we look at your gross margin compared to other players in the industry, we are -- gross margin is quite superior, but then it doesn't flow into the EBITDA margin. When we break up the expenses actually, as you said in the earlier question, your sales and -- stores and spares, which is basically the warranty cost is much higher. And also, the other expense item, which is much higher is the advertisement expense. So sir, just to understand that some time back you had an aspiration to reach double-digit margin, what would be the trajectory? And how will we reduce these expense line items to reach the EBITDA margin, which is closer to the industry competitors. And at what stage do we reach when we will need to give lesser warranties and lesser spend on that side?

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [105]

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Yes. So Rajshankar here. I'll answer the first part, then Mr. Chatterjee can answer the part around the warranty. See we know that we have a superior gross margin profile and how this will translate into the bottom line is for us to get the revenues that are commensurate with the structure that we have. And in fact, there were 2 very important points. One is that the distribution network that we have, our extraction from that distribution network is simply not good enough. So we have shared earlier that if we look at capital, there is like front loaders, top loaders, et cetera. We have 2,500 to 3,000 people who be -- that's monthly. We need to increase that figure to 5,000, 6,000s and more. So the biggest agenda is to get the extraction from the network, and there's a lot of work that we are doing on that for the last 2, 3 quarters. And we hope that, that results in better productivity in the quarters to come. So the big agenda is that.

The second big agenda to translate that gross margin into the bottom line, is to get our AC reinvent and what has been happening, which was a very significant impact in the previous year as well is that the imports, there's a big drag on the bottom line because of the impact of the duty and the ForEx level. So once the air conditioners localization goes live, the portion of the revenue that comes from ACs will come at a much healthier gross margin profile and that will have a significant impact on the bottom line.

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Romil Jain, Systematix Shares & Stocks (I) Ltd. - Assistant VP - PMS [106]

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Yes. But my question is that why in terms of discounting, so -- I discussed during the AGM that the advertisement expense, which is about 6% also has sales promotion, which is the salaries, which we pay to the staff, which is there and in stores like Vijay Sales and Chroma. So why it is like much higher -- including the warranties is much higher than the industry because our product quality and our positioning, especially in the front load, or I would say in the washing machine space is pretty strong. So why would we need to spend more than the industry?

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [107]

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Can I explain this?

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Romil Jain, Systematix Shares & Stocks (I) Ltd. - Assistant VP - PMS [108]

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Sure, sir.

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [109]

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See the sales promotion experience even the -- during AGM, I explained. Our overall expense is 5.13. Out of that 3.58 is our counter sales representative who are in the stores, who we have deployed, and we have planned to even increase more to increase our distribution reach. But our advertisement and sales promotion is around 1.5, 1.55 -- 1.55 to be precise, during the 2018, '19, which is absolutely in line with the other competitor, or we are maybe slightly less than that. The future expenses, which is the counter sales expenses which we shown it under sales and promotion expenses. They are required in the -- this is counted to push our product. That more increase in our product lines and the dealer reach, we want to have -- we need to deploy that. And the other part, you said the operating expenses, like I have already said that operating expenses only 3% increase is there including -- though we have got 13% growth, 75% of that is variable. And these harm expenses which has gone up mainly because of the IFB Point CoCo stores, which are our own. Those were rent. Rents are recovered through sale of our product, and we actually -- it is accretive -- income-accretive actually.

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Romil Jain, Systematix Shares & Stocks (I) Ltd. - Assistant VP - PMS [110]

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So sir, the point is on the warranty expenses. I was just wanting how our expenses are higher than the industry?

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [111]

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Yes, higher than industry because we give 4 years warranty, okay? And our population of washing machine till date foreign orders is highest the other companies, for example, if you take any other company their mix are absolutely different. In our case, we are predominantly on the washers. Arup sir, you can add.

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Arup Das, IFB Industries Limited - Head of Marketing - Engineering Division [112]

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Yes. I think the entry that you are seeing is an entry related to a provision created for servicing of the future population, essentially. And that is why the warranty results that you are reading look like. But as far as quality levels, et cetera are concerned, we are -- we are either the industry best or among the industry best, actually. So this more a financial provisioning that you are seeing.

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Romil Jain, Systematix Shares & Stocks (I) Ltd. - Assistant VP - PMS [113]

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I'd point -- sir, as you mentioned earlier that we are looking at scale. And so at some point of time when you read that scale, which you desire probably maybe next couple of years. Do you think we will have lever to reduce our warranty from a 4 year to 3 year which is more industry standard because that is -- it's like the consumption of stores and spares, which includes that is about 5%. I have comparisons of all other players, there is no way. And also, we have another 0.5% of warranty expense sitting in the line item. No other player in the industry has this kind of number.

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Arup Das, IFB Industries Limited - Head of Marketing - Engineering Division [114]

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Yes. So my suggestion, Mr. Jain would be that you could have a off-line discussion with Mr. Chatterjee on this, to give a better understanding of this figure. We think that in terms of the customer proposition that we have. And the fact that we back the customer for a complete 4 years on a comprehensive warranty. We think that it is a very powerful customer connection sales lever, and we would like to retain that proposition. In terms of the financial attached figure that you are seeing, maybe an off-line discussion with Mr. Chatterjee will clarify any doubts on this.

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Operator [115]

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(Operator Instructions) We have next question from the line of Khadija Mantri from Religare.

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Khadija Mantri, Religare Enterprises Limited - Research Analyst [116]

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If I look at appliances revenue breakup, in the top load washing machine, the growth has been flattish. And in the presentation, it says that the key to increase the revenue is increase product placements across market segments. So can you please explain this point in detail. And also, I want to know the sluggish growth in the washing machine segment? Was it because of the general slowdown? Or there are still some supply side and distribution-side constraints with the company?

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Arup Das, IFB Industries Limited - Head of Marketing - Engineering Division [117]

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So I'll answer the first part. The -- as far as IFB itself is concerned, we will grow if we do have our distribution piece well which is to ensure that the network that we have, we extract as much as possible. And that's an internal thing. That has nothing to do with the market per se. If we do that, we will get the growth that we want. In quarter 1, the figures that you are seeing, normally the quarter 1 is a period in which the washer sales are subdued. Like we've shared earlier, and this picks up momentum and matches expectations in Q2, Q3 and partially in Q4. So I would expect the much better figures in Q2 and Q3.

The other point that you asked is about the top loaders. And yes, we are not happy with the top loader sales as it stands today because we have been targeting internally a much better instrument of top loaders across our entire network. That work is still not properly done. And if you recall, we have shared this earlier as well that we had internally set a target of reaching 30,000 top loaders a month which is the product range that we have on today, and against that we are still in the only 20s. So our strategy for top loader is to basically drive the placements, which is the part that we've also shared in the investor presentation. And does that answer your question?

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Khadija Mantri, Religare Enterprises Limited - Research Analyst [118]

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Yes. Yes, sir.

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Operator [119]

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(Operator Instructions) We have next question from the line of Manoj Gori from Equirus Securities.

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Manoj Gori, Equirus Securities Private Limited, Research Division - Associate [120]

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Hello, am I audible?

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Operator [121]

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Yes, sir. You are.

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Manoj Gori, Equirus Securities Private Limited, Research Division - Associate [122]

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Sir, so now as per our understanding, like, from whatever comments you have made. So your first quarter, obviously, the adverse product mix has actually weighed on the profitability and we recorded somewhere around 4.5% EBITDA margin at company level. So going forward, our product mix, for -- at least for Q2 and Q3 would be favorable for the company. And Q4, again, there would be in-house manufacturing of room air conditioner. So sequentially, going forward, your margins will -- are likely to move in the upward trajectory. Is this understanding correct?

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [123]

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Yes, please.

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [124]

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Mr. Chatterjee, would you like to answer that?

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [125]

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I said, yes.

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Manoj Gori, Equirus Securities Private Limited, Research Division - Associate [126]

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Okay. Okay. And sir, going forward, if you look at, I think, 6.2 kg, the variant that you were supposed to launch has been delayed a lot. So is there any chance like we would be delaying -- there could be any possible delay?

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [127]

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No. It's not a question of delay. We are just evaluating the capacity requirements for the season. And then we will decide time to introduce this basically.

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Manoj Gori, Equirus Securities Private Limited, Research Division - Associate [128]

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Okay sir. And sir, like, if we look at, I think rains have been decent enough. So how has the season started actually for your washers?

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [129]

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See as of July it is at similar levels as the Q1. But August onwards is actually when the upward drift starts and that starts with Onam. Right now, whatever movement we are seeing or inquiries we are seeing is absolutely in line with what we would expect for this thing.

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Manoj Gori, Equirus Securities Private Limited, Research Division - Associate [130]

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Okay. Okay. Because there are a lot of talks of some macro headwinds, consumer sentiments being dampened, so you don't see any significant impact coming from there?

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [131]

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See this is an interesting point that you raised. And what we have always maintained on this that yes, there are micro -- macro level headwinds and slowdown, et cetera. That's obviously there, and everybody is seeing that in the market. But for us, I think the main agenda is to ensure that we cover our network well. So if we were totally saturated with network, present everywhere and doing that everywhere, then obviously, we are more affected by a macro headwind. But internally, our focus is the fact that look, we have a huge distribution network. We are still not doing as good a job as we should be doing. We need to do much more. And I think if we do that, then the macro headwinds should not be affecting us actually. And that's the position that we have internally.

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Manoj Gori, Equirus Securities Private Limited, Research Division - Associate [132]

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Right. Sir, one more point I would like to highlight. So when we look at, we have total distribution network of around 10,500, 11,000 touch points, but our top load washing machines are available only roughly at around 50% of the total outlet. So like -- don't you see like we could have done much better, especially in the washing machine category where we have relatively strong presence in front load.

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [133]

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Yes. It's absolutely right. And we have not done as well in top loaders as we should be doing and that is one of the things that we think we need to do much, much better. There is no reason why we should not be selling many more top loaders by just ensuring better placement. You'll see it's a job we have not done well as of now actually.

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Manoj Gori, Equirus Securities Private Limited, Research Division - Associate [134]

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So sir, like have you changed anything to increase the penetration for your top load washing machine? Like any change in strategy or approach?

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [135]

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So what we have done, which we have been doing for about 2, 2.5 quarters now is that we have restructured the sales force. We have looked at how we can plan the journey better at the ground level ensuring that salespeople cover more outlets in a given month. We have introduced sales force automation in terms of measuring sales productivity. We have looked at account-wise strategy, taken large accounts, large chains and done the business agreements with them accordingly. So a lot of work has happened in the last 3 to 4 months. And that needs to show itself in terms of volumes delivered, which is what we are targeting in Q2 and Q3 of this year. But a lot of work has been done in terms of the sales force approach to the market.

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Manoj Gori, Equirus Securities Private Limited, Research Division - Associate [136]

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Okay. And that has started giving positive -- like in terms of positive results.

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Rajshankar Ray, IFB Industries Limited - CEO of Home Appliances Division [137]

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Yes, our belief is that it will give good results in the coming quarters.

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Operator [138]

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(Operator Instructions) As there are no further questions from the participants, I now hand the conference over to Mr. Chirag Muchhala from Nirmal Bang for closing comments. Sir, over to you.

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Chirag Muchhala, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [139]

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Yes. Thanks, Vikram. I would like to thank the management for giving us the opportunity to host the call and to all the participants for their presence. Sir, would you like to make any closing comments?

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Prabir Chatterjee, IFB Industries Limited - CFO & Executive Director [140]

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Thank you. Thank you, once again. Thank you to us.

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Chirag Muchhala, Nirmal Bang Securities Pvt. Ltd., Research Division - Research Analyst [141]

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Yes. Thanks a lot, everyone.

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Operator [142]

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Thank you very much, sir. Ladies and gentlemen, on behalf of Nirmal Bang Equities, that concludes this conference call. Thank you for joining with us. You may now disconnect your lines.