Havells India Limited (HAVELLS) Q1 FY23 Earnings Concall Transcript

Havells India Limited (NSE: HAVELLS) Q1 FY23 Earnings Concall dated Jul. 21, 2022

Corporate Participants:

Anil Rai Gupta — Chairman and Managing Director

Rajesh Kumar Gupta — Director, Finance and Group Chief Financial Officer

Analysts:

Rahul Agarwal — InCred Equities — Analyst

Naval Seth — Emkay Global Financial Services — Analyst

Latika Chopra — J.P. Morgan — Analyst

Siddhartha Bera — Nomura Securities — Analyst

Achal Lohade — JM Financial Institutional Securities — Analyst

Atul Tiwari — Citigroup — Analyst

Aakash Javeri — Perpetual Investment Advisors — Analyst

Rahul Gajare — Haitong International Securities Group — Analyst

Vishal Biraia — Max Life Insurance — Analyst

Abhijit Akella — Kotak Securities — Analyst

Keyur Pandya — ICICI Prudential Life Insurance Company Limited — Analyst

Ashish Jain — Macquarie — Analyst

Pulkit Patni — Goldman Sachs — Analyst

Gopal Nawandhar — SBI Life Insurance — Analyst

Prasheel Shah — CapGrow Capital Advisors LLP — Analyst

Shrinidhi Karlekar — HSBC — Analyst

Rakesh Roy — Indsec Securities and Finance Limited — Analyst

Devang Patel — NAFA Asset Managers — Analyst

Hitesh Taunk — ICICI Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Q1 FY ’23 Earnings Conference Call of Havells India Limited, hosted by InCred Equities. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Rahul Agarwal from InCred Equities. Thank you, and over to you, sir.

Rahul Agarwal — InCred Equities — Analyst

Thank you, Rutuja, and hello, everybody. Good morning. InCred Equities welcomes everyone today on this call to discuss the first quarter fiscal ’23 results of Havells India Limited. We thank the Company for giving us this opportunity to hold the call.

We have the senior management of the Company with us today, represented by Mr. Anil Rai Gupta, Chairman and Managing Director; Mr. Rajesh Gupta, Director of Finance and Group CFO; Mr. Ameet Gupta, Whole-Time Director; and Mr. Rajiv Goel, Executive Director.

I now hand over the call to Anil ji for his opening remarks, and then we’ll get into the Q&A session. Over to you, Anil ji.

Anil Rai Gupta — Chairman and Managing Director

Thank you very much, Rahul. Good morning. We hope everyone is staying safe.

You would have reviewed the results by now. There was steady growth in quarterly and three-year CAGR numbers. Overall, contribution margin sequentially maintained except cable, which was adversely impacted due to commodity cost fluctuations. We expect benefits from the recent cost moderation to reflect in a couple of quarters. The demand outlook is stable in consumer and residential segments with slight deferment in industrial and subsegments.

We can now proceed for Q&A.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Naval from Emkay Global. Please go ahead.

Naval Seth — Emkay Global Financial Services — Analyst

Yeah. Thank you for the opportunity, sir. I have two questions. First, on channel inventory on cable and wire and other products specifically.

And second, on Lloyd margins, as your media interview suggests that Lloyd margins will normalize in ensuing quarters. So will that get somewhat impacted by new facility, which will be again operational from this year end or so?

Anil Rai Gupta — Chairman and Managing Director

Thank you very much. So, in cables and wires, generally, the system inventory is lower. And hence, we believe whatever short-term pain of as the inventory would be there would be over in this quarter. So from the third quarter, we expect normalized margin levels to come back in cables and wires.

As far as Lloyd is concerned, the — because the inventories are larger, and then the season is also slower in the second and third quarter, we expect 100% normalized margins in the fourth quarter. We do not see any major impact on margins because of the upcoming — the plan because by the time that gets ready, we would be venturing into the second — the coming season of air conditioners. So both, I think, in cables and wires and Lloyd, we should be expecting normalized margins in the third and fourth quarter.

Naval Seth — Emkay Global Financial Services — Analyst

Okay. And sir, a follow-up on this, inventory level for other B2C products, is there any change there as well?

Anil Rai Gupta — Chairman and Managing Director

No. I think they have been stable over the last few quarters.

Naval Seth — Emkay Global Financial Services — Analyst

Sure. Thank you so much. I’ll come back in the queue.

Anil Rai Gupta — Chairman and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Yashika Chopra [Phonetic] from J.P. Morgan. Please go ahead.

Latika Chopra — J.P. Morgan — Analyst

Hi, thanks. This is Latika here. I just had a little more follow-up on the earlier two questions that were asked. The first one is on cables and wires. We did see another company also reporting Q1 numbers and it seems the margin held up pretty well there. So I wanted to understand when you expect margins to improve. Are we going to see sequentially improving margins starting with Q2 itself? Or there’s something else which we need to make a note of here?

And the second bit was on Lloyd margins. You said normalized margins, if you could help us with what is the definition of normalized margin? Any range that you have in mind? And also if you could clarify what kind of incremental capacity is going to be commissioned and the timelines for the same? Thank you.

Anil Rai Gupta — Chairman and Managing Director

So as far as cables and wires is concerned, generally, when there is a sudden reduction in the raw material prices. It’s very evident that when you are selling in the market, you would be expected to reduce the prices, especially in cables and wires because — when we — when there’s a sudden increase also or when there is an increase if we pass it on to the consumer in a short period of time, as well as in a rational. And obviously, there will be system inventory, certain purchases, which will continue to happen because there is some imported raw materials also which continue to happen. Hence, there will be certain impact in the second quarter. Hopefully, by the — in a few days or a few weeks, the system inventory will go down, but there will be a certain impact from the past purchases. That’s why I said, by the third quarter, we expect normalized margins to come back in cable and wires fully.

As far as Lloyd is concerned, we’ve seen that between [Phonetic] November or October before the sudden increase in raw materials started happening in the industry, as well as for the Lloyd, we did not pass on the entire cost increase in the market because the season was coming after two years and everybody was wanting to, let’s say, retain or regain market shares. So there was not full transfer of cost increases in the market. Before that, Lloyd was making double-digit contribution margin, and we believe that we should be back to those margin levels by the fourth quarter.

Latika Chopra — J.P. Morgan — Analyst

Okay. Thank you so much.

Operator

Thank you. The next question is from the line of Siddhartha Bera from Nomura. Please go ahead.

Siddhartha Bera — Nomura Securities — Analyst

Yeah, sir. Thanks for the opportunity. Sir, my first question is on the volume growth side. So, would it be possible to highlight if I just look at the electrical business ex of Lloyd, we have been about like a 50% growth in the current quarter, how much will be led by volumes? And going ahead, what do you expect in terms of volume growth? So we did about 11%, 12% in FY ’22. Leaving FY Q1 because there is a base impact, what kind of volume growth should we expect for the remaining part of the year?

Anil Rai Gupta — Chairman and Managing Director

So we’ve seen about a 40% increase in volume in case of Havells and about 10% to 12% in terms of value. So basically — but again, this is not the right comparison because it was a disrupted quarter last year.

Siddhartha Bera — Nomura Securities — Analyst

So any outlook, sir, if you can share, how should we expect that type of trend of double-digit to continue? Or do you see some risks because of the price hikes which have happened in the past?

Anil Rai Gupta — Chairman and Managing Director

You expect — asking me to say what growth we are expecting in the coming quarters?

Siddhartha Bera — Nomura Securities — Analyst

Yeah.

Anil Rai Gupta — Chairman and Managing Director

Generally, we don’t give guidance. I think let’s see how the market behaves. I think I’ve also mentioned on the media as well in the morning that in the month of second half of May, June, there were some slight slowness in demand, especially more towards the industrial and consumer, industrial and infrastructure segment, right? I also believe that was due to the fact that there was high prices and raw materials were at an all-time high. We believe that with these prices coming down, we should expect that demand should also comes back very quickly. So I think going forward, we are positive about the demand outlook.

Siddhartha Bera — Nomura Securities — Analyst

Got it. And, sir, second question is on the Lloyd. So I think the rating changes were supposed to happen in July. So any update on what has happened? And are we looking at any price hikes because of that?

Anil Rai Gupta — Chairman and Managing Director

That has happened already. The rating changes have happened. So all new production will happen — will be on the new ratings. So, yes, there is a cost impact on that, and we are evaluating that. Depending upon the raw material scenario, as well as depending on the cost increase, we will be taking certain pricing actions in the coming few weeks.

Siddhartha Bera — Nomura Securities — Analyst

Okay. Okay. So basically, the current commodity fall, will it — and the price hikes, which we will probably be taking. So will that be sufficient enough to take us to the double-digit contribution margins in the current quarter? Or do you think that might take something — some time more?

Anil Rai Gupta — Chairman and Managing Director

So as I said, there is inventory in the system, and this is — the second and third quarter is generally low in volumes for products like air conditioners. So we will be having — carrying this inventory for some more time. And we expect by the end of third quarter and fourth quarter, we should be back to normalized margin.

Siddhartha Bera — Nomura Securities — Analyst

Got it, sir. Okay. Thanks a lot sir. I’ll come back in the queue.

Operator

Thank you. The next question is from the line of Achal Lohade from JM Financial. Please go ahead.

Achal Lohade — JM Financial Institutional Securities — Analyst

Yeah. Good morning. Thank you for the opportunity. My first question was, if you could explain in terms of the ECD margins, we see that Q-o-Q the ECD margins at contribution level were fairly steady, while in terms of the EBIT margin, there was a substantial drop. Is it entirely to do with the A&P? Or is there anything else as well, sir?

Anil Rai Gupta — Chairman and Managing Director

Yeah, entirely due to A&P because generally, A&P is never — I would say, you have to look at the entire year. So yes, most of it is due to A&P.

Achal Lohade — JM Financial Institutional Securities — Analyst

Understood. The second question I had is, if you could give us some sense in terms of — given the first quarter of ’21 and ’22 were impacted. On a three-year CAGR basis, what would have been the volume growth across segments? Would that be in mid-single-digit, high-single-digit?

Anil Rai Gupta — Chairman and Managing Director

It would be high-single digits or close to double digits.

Achal Lohade — JM Financial Institutional Securities — Analyst

Understood. And what I’m trying to also ask is given the cost reductions, what we are looking at, is it fair to say that part of this will be retained, part of this will be passed on? And do you see the way it will behave will defer depending on the categories or it will be, by and large, get passed on?

Anil Rai Gupta — Chairman and Managing Director

I have not fully understood your question. Can you repeat?

Achal Lohade — JM Financial Institutional Securities — Analyst

So in terms of the RM cost reduction, now what we are looking at, at this point in time, would this be largely passed on? Will this be retained? And would this be extent of reduction in the — or pass on will depend on the category?

Anil Rai Gupta — Chairman and Managing Director

Yeah. I think this will give us an opportunity to at least look at the long-term normalized margins of each business in each category. So if there has been any reduction, let’s say, in stable businesses like switchgears, ECDs, lighting. So that will give us an opportunity to at least come back to those margin levels. As I said, cables and wires and Lloyd is very acute in terms of the impact and that should normalize in the next couple of quarters. So this reduction — and this is very recent. So you can’t take really a view on how long they will sustain and how much will it further go down or up. So, I think this generally happens over a few weeks rather than just an immediate price hikes or slowing [Phonetic] price hikes.

Achal Lohade — JM Financial Institutional Securities — Analyst

Got it. And just last follow-up is with respect to Lloyd. Is it possible to share what is the market share we have in the AC segment for the season, if we have for the season or for the quarter?

Anil Rai Gupta — Chairman and Managing Director

Well, we tend to believe that we’ve regained market share in Lloyd air conditioners, and we would be among the top three players, at least in the first half of the year — first half of the calendar year.

Achal Lohade — JM Financial Institutional Securities — Analyst

Got it. Thank you. And I’ll come back for the follow-up. Thank you.

Operator

Thank you. The next question is from the line of Atul Tiwari from Citi. Please go ahead.

Atul Tiwari — Citigroup — Analyst

Yeah, sir. Thanks a lot. Sir, just one question on AC industry. So now that we have seen Lloyds operating at negative margins through the season. And obviously, the market share has gone up. And in response to that some of the larger players have indicated that they are willing to work at lower margins, at least temporarily compared to what they were used to in past to retain their market share. Sir, do you think that there is a risk of entire AC industry margin is structurally settling down at lower level because of this fight for market share among key players?

Anil Rai Gupta — Chairman and Managing Director

I doubt very much because last two years, there was disruption in the air conditioner market. Ultimately, it is a technology-oriented business than a product. And hence, it has to retain certain amount of margin levels to reinvest back into technology and upgradation for the consumer. So, ultimately, I think the entire competition should behave responsibility in this. So we believe that raw material prices stabilizing over the medium-term, I don’t see any major structural changes in the business.

Atul Tiwari — Citigroup — Analyst

And sir, I mean, following up on that to — so, I mean, as per your plan, what would be the EBIT level normalized margin for Lloyd that you will be happy — you’re looking for?

Anil Rai Gupta — Chairman and Managing Director

I think let’s not focus on that as of now. But this has been a period where raw material prices have been up and down quite considerably. So let’s come back to normalized margin levels, and we will continue to invest in brand building and distribution enhancement in the coming times. This is a long-term stay [Phonetic] for us, and we’ll take it as it comes along.

Atul Tiwari — Citigroup — Analyst

Okay, sir. Thanks.

Operator

Thank you. The next question is from the line of Rahul Agarwal from InCred Equities. Please go ahead.

Rahul Agarwal — InCred Equities — Analyst

Yeah, hi. Thanks for the opportunity. Sir, one question on Lloyds. Just to get this right, the base revenue last year was around INR2,200 crores, INR2,300 crores. My sense is, we are utilizing almost 90% capacity. So is the understanding correct that the incremental growth is all going to come from new capacity additions and the existing infrastructure is all fully utilized? Is this correct?

Anil Rai Gupta — Chairman and Managing Director

No, that’s not true because INR2,200 crores also includes the other product categories, where washing machines, refrigerators and LED. So we are not — in the last financial year, we were not at 100% capacity. But going forward, the kind of growth that we are envisaging, we would definitely need to enhance our production facilities in South and that would also take a sizable part of the entire demand.

Rahul Agarwal — InCred Equities — Analyst

So fiscal ’23 growth is — there is still scope to utilize existing capacity to further grow on the last year’s number. Is that correct?

Anil Rai Gupta — Chairman and Managing Director

That’s right.

Rahul Agarwal — InCred Equities — Analyst

Got it. And lastly, on — we’ve been hearing from some dealer checks that Reliance, through the BPL and the Kelvinator brand right, they’re trying to cause certain disruption into the similar product categories. Would you think it’s going to be a meaningful play there? Or in terms of your own assessment of absorbing capacity for whatever new product launches we plan for Lloyd, that should be comfortable enough?

Anil Rai Gupta — Chairman and Managing Director

Yeah. Generally, the AC industry has seen at least 10 to 12 brands, and there would be top four, five brands, and then there are a host of other brands as well. So there will be brands. But I think ultimately, it depends upon what the consumer goes for technology, brand, distribution and service, a lot of factors in building success for a brand and it’s not really that, I would say, that price elastic where suddenly market shares change a whole lot.

Rahul Agarwal — InCred Equities — Analyst

Got it, sir. Thank you so much. I’ll come back in the queue.

Anil Rai Gupta — Chairman and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Aakash Javeri from Perpetual Investment Advisors. Please go ahead.

Aakash Javeri — Perpetual Investment Advisors — Analyst

Good morning. And thank you so much for the opportunity. I have two questions. My first question was, when would the mandatory BEE ratings of fans kick in?

And the second question was that out of the entire fan markets, how do you that evolving over the next three to five years, especially in terms of the BLDC penetration?

Anil Rai Gupta — Chairman and Managing Director

So the BEE ratings changed from the 1st of January. And going forward, there will be a market for BLDC fans and the ranges will continue to enhance. And generally, industry has seen over a period of time that products transition towards more energy-efficient products. And if the cost difference continues to reduce in this, we will definitely see more of BLDC penetration in the business.

Aakash Javeri — Perpetual Investment Advisors — Analyst

Sure. Thank you so much.

Anil Rai Gupta — Chairman and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Rahul Gajare from Haitong Securities. Please go ahead.

Rahul Gajare — Haitong International Securities Group — Analyst

Thanks for the opportunity. Some of my questions are answered. But could you — on Lloyds, could you give us a sense on what is the price hike that you would have taken in this particular quarter, if that is something that you’ve done? Because you’ve taken about 10% price hike in the last year. So in this particular quarter or till June, if you could give us some sense?

Anil Rai Gupta — Chairman and Managing Director

I would say that we would have maintained the prices what we would have continued in the fourth quarter and the first quarter as well.

Rahul Gajare — Haitong International Securities Group — Analyst

Okay. The second question is, in terms of the shortages of raw material supply chain issues, is all of it behind or are you still seeing shortages of certain raw material or those kind of things?

Anil Rai Gupta — Chairman and Managing Director

Yeah. I think generally speaking, it is all behind. The noise is more about chips wherein now we are in the process of having a long-term planning schedule, which means we’re planning for the next year. So — but supply chain disruption is — it didn’t really affect us in the past as well, and it’s not really affecting us now.

Rahul Gajare — Haitong International Securities Group — Analyst

Okay. Sir, my last question is you indicated that you’ve got about 40% increase in the volumes in this particular quarter. Is there a particular category that has seen a significant rise in volume? Because lighting, we’ve seen about 70% plus growth. Most of the other were in the range of 30% to 40%. So any particular category which really stands out in terms of the volume growth that we’ve seen in this quarter?

Anil Rai Gupta — Chairman and Managing Director

Across lighting has seen better growth in this quarter. Also because of the fact that it also has an industrial and professional component, which was majorly disrupted last year because of the second wave of COVID. But generally speaking, it is across.

Rahul Gajare — Haitong International Securities Group — Analyst

Fair enough. Okay. Thank you very much.

Operator

Thank you. The next question is from the line of Vishal Biraia from Max Life Insurance. Please go ahead.

Vishal Biraia — Max Life Insurance — Analyst

Hi. What will be the key driver for this improvement in margin that we are targeting to double-digit contribution by fourth quarter? So will it be the lower discounts that we were offering to the dealers? Or will it be just the correction in commodity prices? Because that would impact everybody else as well. So could you elaborate a bit more on this? Thank you.

Anil Rai Gupta — Chairman and Managing Director

Well, I think as I mentioned before that the raw materials went up and the entire cost increase was not passed down. So when the raw materials go down, there will be an expansion in margins going forward, and that’s what we are expecting by the fourth quarter. So I don’t know whether I’ve answered your question. I’m not — maybe I’m not fully understood.

Vishal Biraia — Max Life Insurance — Analyst

So I was coming from the perspective that we’ve been more aggressive than the industry maybe in increasing overall market share.

Anil Rai Gupta — Chairman and Managing Director

I didn’t say that we were more aggressive in our industry. I mentioned that the industry didn’t take the entire price hike as commensurate to the cost increase. So I mentioned that we’ve also not done it, and we believe that the industry has also not passed on the entire cost increase.

Vishal Biraia — Max Life Insurance — Analyst

And now you mean that now that the commodities are corrected, so the incremental price hikes are not required. And so, the margins for the industry as a whole should bounce back. Will that be fair?

Anil Rai Gupta — Chairman and Managing Director

Yes.

Vishal Biraia — Max Life Insurance — Analyst

Okay. And in terms of market share, further incremental market share growth that we are targeting in the air conditioning business, what will be the key drivers? I mean, one is the brand building that you are already focused on, but incremental. Will it be more incentives for the dealers, distributors more — I mean, working maybe better placing [Phonetic] terms?

Anil Rai Gupta — Chairman and Managing Director

See, long-term market share development requires product development, technology, manufacturing, redistribution, brand building and quality perception of the consumer. So I think incentives to the dealers and all play a very — I would say, a very, very short-term goal and many times it is counterproductive also. So Havells had not done that, practiced this in the past and we don’t envisage this happening. I think there is a — I keep saying this, Lloyd is a long-term play, something what Havells has done over the last 20 years that we will continue to build. Reiterating, brand, distribution, manufacturing and technology.

Vishal Biraia — Max Life Insurance — Analyst

Okay. And lastly, what — to what extent do we outsource air conditioning?

Anil Rai Gupta — Chairman and Managing Director

So pretty much it’s now manufactured in-house, maybe to the extent of certain models if they don’t produce, but then maybe maximum 10% to 15%.

Vishal Biraia — Max Life Insurance — Analyst

Okay. Okay. And what is the contribution of refrigerators and washing machines in this quarter?

Anil Rai Gupta — Chairman and Managing Director

We don’t give a breakup in this. We’d look at the overall [Speech Overlap].

Vishal Biraia — Max Life Insurance — Analyst

Approximate percentage? Maybe 5%, 8%, single-digit stuff?

Anil Rai Gupta — Chairman and Managing Director

I’ll refrain from answering this, please.

Vishal Biraia — Max Life Insurance — Analyst

Okay. Okay. Fair enough. Okay. Thank you. Thank you. I’ll come back in the queue.

Operator

Thank you. The next question is from the line of Abhijit Akella from Kotak Securities. Please go ahead.

Abhijit Akella — Kotak Securities — Analyst

Yeah. Good morning. Thank you so much for taking my questions. First one, just on the cable raw material procurement. I was just hoping to understand the sourcing model a little bit better. If you could just help us understand how much of it is imported versus procured domestically? And also whether there is any kind of embedded derivative or any such time lag between the time you book the order for the metal versus the time that you actually make the payment?

Anil Rai Gupta — Chairman and Managing Director

So we have various businesses and — are you specifically talking about any particular business?

Abhijit Akella — Kotak Securities — Analyst

Cables in particular.

Anil Rai Gupta — Chairman and Managing Director

Okay. So cables, generally speaking, we buy most of the raw materials from the country, but there are certain raw materials for wires like copper, we import part of it. And it depends upon availability, as well as pricing at that particular period of time. It could vary between 20% to 40% the extent of imports. And there are no derivatives that we believe in because we believe in the fact that there is not high levels of inventory in the entire system. And generally, the cost increase or reduction is passed on to the market.

Abhijit Akella — Kotak Securities — Analyst

Okay. So if I understood you correctly, sir, you’re saying that the price is set on the date that we sign the contract itself, it’s not set at a later date in time?

Anil Rai Gupta — Chairman and Managing Director

I would not like to get into these details on this — and there — but there are no derivatives.

Abhijit Akella — Kotak Securities — Analyst

Understood. And second part I just had was on some of the cost items. On the advertising and promotion line, is there a ballpark number for the full year that you could help us with in terms of guidance and also the rough seasonal pattern that you expect in that?

Anil Rai Gupta — Chairman and Managing Director

We usually spend close to about 2.5%, 3% in a normal year other than the disrupted COVID years, but generally about 2.5% to 3%. And it — yes, it does vary seasonally. But over the entire year, it’s about 2.5% to 3% of the revenues of the entire Company.

Abhijit Akella — Kotak Securities — Analyst

Understood, sir. And one last thing, the employee cost has ticked up a little bit. Just wondering if there are any one-off items within that or whether we should use this as a good number for modeling purposes going forward?

Rajesh Kumar Gupta — Director, Finance and Group Chief Financial Officer

Actually, there is — if you see sequentially, there is no significant growth. I think there were certain maybe adjustments in the last year. So I think that’s why on the base it is looking higher. But otherwise, this is normative in nature.

Abhijit Akella — Kotak Securities — Analyst

Okay. Understood. Thank you so much. All the best.

Anil Rai Gupta — Chairman and Managing Director

Thank you.

Operator

Thank you. Next question is from the line of Yashika Chopra from J.P. Morgan. Please go ahead.

Latika Chopra — J.P. Morgan — Analyst

Yeah, hi. This is Latika again here. I wanted to just check with you to get some flavor on the demand outlook. I understand you said you expect steady — with this [Phonetic] steady trends on the residential side. But due to the high inflation, did you sense any moderation in consumer sentiment as you progress through the quarter? And do you anticipate — and when do you anticipate this commodity deflation benefits to start getting passed on to consumers, particularly for the ECD category? And any color on consumer behavior towards upgrading? Has that got affected? Any stance on rural versus semi-urban versus urban trend? Any thoughts, sir? Thank you.

Rajesh Kumar Gupta — Director, Finance and Group Chief Financial Officer

No. So I think starting with the last question on the rural, urban or the uptrading, I think we have explained this in the past, we have never — we have not seen much consumer behavior changing in terms of the high inflation. Also, I think not all the costs have been passed on also to the consumer. So it’s not that he has borne the entire brunt of the inflationary pressure. Yes, I think as we just mentioned, that towards the later half of the last quarter, we did see some moderation. I think it was — maybe it was largely also due to the trade being cautious because when the commodity fall, they believed that there will be some price benefit being passed on, so they hold. So there have been some maybe destocking at the dealer level. Cable, wires maybe higher, product categories, we do believe the destocking. And that’s why the channel invent is extremely low in our view.

So I think the consumer, we believe, continues to see the sort of purchase and that’s why on the consumer side, we are more sort of confident. Infra and all also we believe there is a moderation, but hopefully, as the deflationary or the commodity benefits are passed on in the, let’s say, this quarter and going forward, we will — that demand also should revert back. That’s why I think we continue to be sort of cautiously but positive about the demand scenario going forward.

Latika Chopra — J.P. Morgan — Analyst

Thank you. And, sir, last question that I had is, we discussed a lot about air conditioners in Lloyd, but any milestones to talk about in the refrigerator or washing machine side, in terms of innovation, consumer acceptance, distribution, outlet expansion, etc? Thank you.

Anil Rai Gupta — Chairman and Managing Director

I think the washing machines business where we started development much ahead is really taking up a good shape, the consumer acceptance and the trade acceptance is strong. And we now believe that we have a complete portfolio in terms of washing machines. Refrigerators, which we started last year. We believe that by the end of this calendar year, we should have a complete portfolio. But the initial reactions from the trade and the consumer are strong. But to have a complete play of refrigerators, we need a larger range which hopefully should be fully in operational by the end of this year.

Latika Chopra — J.P. Morgan — Analyst

Thank you so much.

Operator

Thank you. The next question is from the line of Keyur from ICICI Prudential Life Insurance. Please go ahead.

Keyur Pandya — ICICI Prudential Life Insurance Company Limited — Analyst

Thank you. Sir, I just want to understand on the Lloyd side, if you look at the calendar year 2022 and if I do the back-of-the-envelope calculation, probably our facilities were utilized fully. Now in that context, the incremental margin improvement will — should be driven by pricing, basically price hike or lower commodity prices. Or are there any other levers? So here, the assumption is that, since the facilities are fully utilized, the operating leverage part has already been there in these numbers.

Rajesh Kumar Gupta — Director, Finance and Group Chief Financial Officer

I think we — as we explained earlier also, right now, we are anticipating the lower commodity cost benefit to reflect in the margin, and that’s where we believe it should be in the later half, rather Q4 because the season also starts late Q3, early Q4. So that’s why we expect the benefits to flow in. And largely, it is predicated on the fall in commodity cost.

Keyur Pandya — ICICI Prudential Life Insurance Company Limited — Analyst

Okay. I understood. Sir, second question, I mean, historically, we have seen this cycle of destocking and restocking at the time of, say, sharp commodity moves in wires and cables. Similar trend is visible in — do you think this [Phonetic] happens in ECD as well? Or it is less prone to this kind of cyclicity? Or any other segment which are prone to this kind of cyclicity?

Rajesh Kumar Gupta — Director, Finance and Group Chief Financial Officer

So less prone, some degree of — you see the destocking would be there, but yes, it will be more pronounced in cables and wires.

Keyur Pandya — ICICI Prudential Life Insurance Company Limited — Analyst

Okay. And sir, just last question. That is on the — I think we have — at least the commentary says from many of the players or OEMs that there is some slowdown in the lighting. So what is your view on that? Because I would just consider lighting as more of, say, utility product. So what is driving slowdown in lighting, if there is any?

Rajesh Kumar Gupta — Director, Finance and Group Chief Financial Officer

So we have not seen any slowdown. Actually, our business is more consumer and professional. We are not doing government orders and all. So, our business continues to hold pretty well. Even margins continues to hold steady because a lot of our business is now innovation-driven and also very deep distribution driven. So we have not perceived a much. So we are not dependent upon any single order or two large orders and then we should create the hazard when those orders go away. So that has not…

Keyur Pandya — ICICI Prudential Life Insurance Company Limited — Analyst

Lighting is not seeing any impact as such as of now?

Rajesh Kumar Gupta — Director, Finance and Group Chief Financial Officer

No.

Keyur Pandya — ICICI Prudential Life Insurance Company Limited — Analyst

Okay. Understood, sir. Sir, thanks a lot and all the very best. I will come back in the queue. Thank you.

Operator

Thank you. The next question is from the line of Ashish Jain from Macquarie. Please go ahead.

Ashish Jain — Macquarie — Analyst

Hello. Sir, I had one question on the switchgear segment. So can you just talk about what the growth [indecipherable] because this quarter, the growth was exceptionally strong. So does it have like any one-off enough [Phonetic] nature there? Or by and large, we are seeing very strong demand on the ground as well?

Rajesh Kumar Gupta — Director, Finance and Group Chief Financial Officer

Yeah. So switchgear, actually if you see last three years, because that will be more relevant, sometime on the lower base it may not reflect. But I think we are very — actually to some extent, excited that we have got almost 15%, 16% CAGR in three years, which has been — if you see the trend before that there has been almost single-digit. So we believe this property of cycle, the construction cycle, which has now kicked in, and which we believe is sustainable. That, I think, should further support the switchgear business. So we continue to be confident about the switchgear and the switches segment.

Ashish Jain — Macquarie — Analyst

Sir, does switchgear have — like what is the mix of retail versus institution on the switchgear?

Rajesh Kumar Gupta — Director, Finance and Group Chief Financial Officer

See, our business is largely retail. It does not mean that there won’t be much institution. But largely, we are distribution-based brands. And that’s why we believe there’s a lot of construction are happening in smaller towns as well as the urban. And we are not much builder-driven business. I think you are aware of that.

Ashish Jain — Macquarie — Analyst

Sir, then on Lloyds, I know a lot have been asked about it. But I just had one question, sir, historically, in Lloyds, when we were seeing double-digit contribution margins, we were also seeing 6%, 7% EBIT margins as well. So shall we think on similar lines? Or given Anil ji spoke about higher advertising spend and higher focus on distribution and all, there could be a variance between contribution versus segmental margins in Lloyds for the next, say, few quarters and all?

Rajesh Kumar Gupta — Director, Finance and Group Chief Financial Officer

So that’s why — as you rightly said, our first priority is to get to the contribution margin. And the — see, rest of the things are strategy dependent and our strategy will continue to invest behind this. We see a very large opportunity in this segment. And I think we see a fairly long-term play with Lloyd into the consumer appliances segment. So, I think we’ll continue to pay long-term cost for the health of this business.

Ashish Jain — Macquarie — Analyst

Okay. Okay. Got it, sir. Thank you so much.

Operator

Thank you. The next question is from the line of Pulkit Patni from Goldman Sachs. Please go ahead.

Pulkit Patni — Goldman Sachs — Analyst

Sure, sir. Sir, thanks for taking my questions. Sir, my first question is bookkeeping. We spent INR56 crore in capex in the first quarter. What is the ballpark number for the year that we should be taking?

Anil Rai Gupta — Chairman and Managing Director

I think we have because of some — I think it will — the things do take time. So I think we are expecting now INR700 crores to INR800 crores.

Pulkit Patni — Goldman Sachs — Analyst

Okay. So that number stays intact. Yeah. I was surprised with the first quarter number. Sir, my second question is, when we look at our portfolio, we’ve got premium products, say, for example, switches in Crabtree, and then you’ve got economy products under different brands. Have we seen a difference in terms of demand trends where the premium product has sold a lot more relative to the economy products? Any trends that you have seen based on different income levels? Because we’ve got a portfolio with spreads across different pocket lines. So anything on that?

Anil Rai Gupta — Chairman and Managing Director

I would say, Lloyd — sorry, REO or the products which are affordable in nature, our recent entry in Havells maybe just about five or six years old. So hence, there is a lot of distribution and reach enhancement which is in progress right now. So, we’ve actually not seen any variation in terms of demand. But if we see a little bit of higher growth in affordable segment, that’s primarily because of distribution and reach enhancement which is happening, whereas our premium products have already been well placed in the market for many years. But, otherwise, generally speaking, the demand is equal throughout.

Pulkit Patni — Goldman Sachs — Analyst

Understood. Understood. And if I may take the liberty of asking, I’m assuming margins would be similar in both categories?

Anil Rai Gupta — Chairman and Managing Director

No, premium products, the margins are definitely higher, but we definitely do get advantage of operating leverage with increased numbers.

Pulkit Patni — Goldman Sachs — Analyst

Got it. That’s helpful, sir. Thank you.

Operator

Thank you. The next question is from the line of Gopal Nawandhar from SBI Life Insurance. Please go ahead.

Gopal Nawandhar — SBI Life Insurance — Analyst

Hi, sir. Thanks a lot for the opportunity. Sir, my question is, in the last two years, despite COVID, we have seen a very healthy growth, 15% CAGR for this quarter. And I think even organized industry has also seen a very healthy growth. And the last few years have been challenging for unorganized player. And now the things are reversing in terms of commodity prices, supply chain issues and all. Are you seeing unorganized player coming back into the system and disturbing the businesses?

Anil Rai Gupta — Chairman and Managing Director

No, we don’t see that trend.

Gopal Nawandhar — SBI Life Insurance — Analyst

Sure, sir. And the second question is on the — how are the inventory in the AC for us and for the system? And how long it will take to liquidate these old price inventories?

Anil Rai Gupta — Chairman and Managing Director

Generally, in the system, the inventories are not very high. But obviously, because of the manufacturing facilities, we do keep in inventory levels, and we continue to build inventory even in the low season. So as we have already mentioned that there are high-cost inventories in the system, so it will take a couple of quarters because this is low selling season anyway. So to — come back to normalized margin levels.

Gopal Nawandhar — SBI Life Insurance — Analyst

Okay. Sure, sir. Thanks a lot, sir.

Operator

Thank you. Next question is from the line of Vishal Biraia from Max Life Insurance. [Technical Issues]

As the participant has placed the call on hold, we’ll move to the next question is from the line of Prasheel Shah from CapGrow Capital. Please go ahead.

Prasheel Shah — CapGrow Capital Advisors LLP — Analyst

Yeah. Hi. I have two questions, both of them are regarding the competition. So this is one of the most competitive industries, right? So what — how do we differentiate ourselves when it comes to lighting, fans and these consumer durables? How do we differentiate ourselves from the competition?

And the second question is regarding the distributors. Now, how do we approach a distributor? What is our strategy when we are going and trying to win new distributors? And how do we sort of keep them and maintain them?

Anil Rai Gupta — Chairman and Managing Director

I would say that this is not a quarterly analysis call, question on the call. So I would suggest if you can spend some time with our team in the IR team. And maybe that will be a better way to understand the strategy of the Company.

Prasheel Shah — CapGrow Capital Advisors LLP — Analyst

Okay. Thank you.

Anil Rai Gupta — Chairman and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Shrinidhi from HSBC. Please go ahead.

Shrinidhi Karlekar — HSBC — Analyst

Yeah. Hi. Thank you for the opportunity. And congratulations on strong top line performance. Anil ji, I have just one question here. Sir, we have seen some senior management exits from Havells and joining competition. So in that topic, I just want to know, these are just few exits which gets reported from competition? Or are you structurally seeing a lot higher attrition rate in senior management?

Anil Rai Gupta — Chairman and Managing Director

In fact, we’ve seen a very low attrition rate in senior management over the last few years. There are a lot of reasons for people to stick to Havells. In fact, our attrition levels beyond the VP levels are low-single digits, I would say. So, I would not say that there are higher attrition levels. Yes, there were some challenges last year wherein we saw some sort of attrition in the technology side, IT side and the R&D side, for which Company has taken various other steps also, for example, employee ownership plans, ESOP plans to give long-term wealth creation opportunities for the employees. But at senior levels, our attrition levels were extremely low, low-single digits.

Shrinidhi Karlekar — HSBC — Analyst

Okay, sir. That was my question, sir. Thank you for answering it. And all the very best.

Operator

Thank you. [Operator Instructions] The next question is from the line of Rakesh from Indsec Securities and Finance Limited. Please go ahead.

Rakesh Roy — Indsec Securities and Finance Limited — Analyst

Good morning, sir. Sir, how much price hike we have taken in Q1, sir?

Operator

I’m sorry, Mr. Rakesh, but can you speak a little louder? You’re not audible.

Rakesh Roy — Indsec Securities and Finance Limited — Analyst

Hello?

Operator

Yes. Please go ahead, sir.

Rakesh Roy — Indsec Securities and Finance Limited — Analyst

Yeah. Good morning, sir. Sir, my first question regarding, sir, how much price hike we have taken in Q1, sir? And any price hiking, sir?

Anil Rai Gupta — Chairman and Managing Director

Any particular business you’re asking?

Rakesh Roy — Indsec Securities and Finance Limited — Analyst

No, overall, sir.

Anil Rai Gupta — Chairman and Managing Director

Okay. It depends on business-to-business. Maybe in switchgear, we have seen certain price hikes in the first half of the quarter. But otherwise, generally, there were no price hikes.

Rakesh Roy — Indsec Securities and Finance Limited — Analyst

Okay, sir. Sir, my next question is regarding, sir, any impact on demand, especially for window AC after a new energy norm implemented from 1st July because this will increase the cost of, say, AC — window AC.

Anil Rai Gupta — Chairman and Managing Director

Yeah. We will see this in the coming quarters because this is a very recent phenomena.

Rakesh Roy — Indsec Securities and Finance Limited — Analyst

Okay, sir. Sir, my last question is, sir, any plan to add new product portfolio in your business, sir?

Anil Rai Gupta — Chairman and Managing Director

This is an ongoing process in various businesses, whether it’s appliances and consumer durables, there are constant product innovations and additions happening. So it’s — I would say, it’s a continuous process.

Rakesh Roy — Indsec Securities and Finance Limited — Analyst

Okay, sir. And sir, how much rural contribution to overall revenue, sir, Havells, sir?

Anil Rai Gupta — Chairman and Managing Director

I would say it’s about 5% of the overall consumer business.

Rakesh Roy — Indsec Securities and Finance Limited — Analyst

Okay. Right, sir. Okay. Thanks a lot for answering, sir.

Operator

Thank you. [Operator Instructions] The next question is from the line of Keyur from ICICI Prudential Life Insurance. Please go ahead.

Keyur Pandya — ICICI Prudential Life Insurance Company Limited — Analyst

Thanks for the opportunity again. Sir, the question is on — sir, if you can just give a breakup of this capex either by product or by, say, growth capex and maintenance capex?

And second, on the Lloyd side, we have earlier highlighted that — basically, I just want to understand what is the — what are we doing under the PLI or the scope of in-sourcing that we’ll be doing under PLI? And earlier, we have highlighted about export of ACs as well. So if you can throw some light, any tentative timelines, whether it would be white label or under the brand Lloyd? If you can touch upon this aspect? Thank you.

Anil Rai Gupta — Chairman and Managing Director

The breakup we normally not provide, but we can tell you the large amount of capex will be accounted for, I believe HT [Phonetic] facility, which is coming in the Southern India.

And as far as the export of ACs are concerned, I think we are getting good response, and this will be both on our own brand, as well as the white label opportunity on a global basis.

Third question was — what was your last — other question?

Keyur Pandya — ICICI Prudential Life Insurance Company Limited — Analyst

So basically, scope — I mean, under the PLI, what would be the scope of our manufacturing?

Anil Rai Gupta — Chairman and Managing Director

So PLI is largely a component base. So we have also participated on few of the components, which we are currently will be done both in the existing facility, as well as the new facility in Southern India.

Keyur Pandya — ICICI Prudential Life Insurance Company Limited — Analyst

I mean, any specific key components that you would like to highlight?

Anil Rai Gupta — Chairman and Managing Director

No, nothing any specific — we’re not doing compressor, if that is the question. So we are not doing that.

Keyur Pandya — ICICI Prudential Life Insurance Company Limited — Analyst

No, no. I’m saying — generally, see, AC unit — generally, we have seen many of the brands doing sub-assembly but there are too many components. So specific few components which you would like to do internally versus you used to outsource it two, three years back?

Anil Rai Gupta — Chairman and Managing Director

We don’t believe in sub-assembly concept. Our — if anybody has seen our manufacturing facilities, they are very integrated manufacturing facility.

Keyur Pandya — ICICI Prudential Life Insurance Company Limited — Analyst

Okay. Okay. Thanks a lot, sir. Thank you. And all the best.

Operator

Thank you. [Operator Instructions] The next question is from the line of Devang Patel from NAFA Asset Management. Please go ahead.

Devang Patel — NAFA Asset Managers — Analyst

Hi, sir. I had some queries around why we do not hedge our copper requirements using derivatives? Is it because we do not find the cost benefit favorable? Have we hedged in the past and if we expect high volatility would we change our mind in future?

Rajesh Kumar Gupta — Director, Finance and Group Chief Financial Officer

No, hedging is — you see, our policy is not to do the hedging. So this is part of the policy. And you see, these things keep coming up, but we have seen in the past that ultimately, these do not provide any tangible benefits. I think one event cannot define the long-term strategy. We believe that the real hedging is that, we pass it on to the market, maybe if there is a lag effect. And this has been working well almost for a few decades now.

Devang Patel — NAFA Asset Managers — Analyst

So consistently, we’ve not been hedging in the past also?

Rajesh Kumar Gupta — Director, Finance and Group Chief Financial Officer

No.

Devang Patel — NAFA Asset Managers — Analyst

Okay. That’s all. Thank you so much.

Operator

Thank you. The next question is from the line of Hitesh Taunk from ICICI Direct. Please go ahead.

Hitesh Taunk — ICICI Securities — Analyst

Thank you for the opportunity, sir. Sir, my question pertains to the distribution network. Can you please quantify what is your distribution network of Havells and Lloyd separately? Because earlier we had a target to increase the town penetration almost double. I just wanted to understand on the distribution point of view for the Havells and Lloyd separately.

Anil Rai Gupta — Chairman and Managing Director

So on the Havells side, we have indicated we have almost 14,000 dealers. And on Lloyd side, more than 1,000 direct distributors.

Hitesh Taunk — ICICI Securities — Analyst

Sorry, sir, 14,000 for Havells and for Lloyd?

Anil Rai Gupta — Chairman and Managing Director

Dealers and provide more than 1,000 distributors.

Hitesh Taunk — ICICI Securities — Analyst

Okay. And what kind of growth are we seeing in the distribution network in the Lloyd front, sir?

Anil Rai Gupta — Chairman and Managing Director

So Lloyd, you see, is multiple channels like regional retail, like MFRs, like online. So all the channels we would argue that we have been well penetrated.

Hitesh Taunk — ICICI Securities — Analyst

Okay. Okay, sir. Thank you. Thank you very much.

Operator

Thank you. The next question is from the line of Vishal Biraia from Max Life Insurance. Please go ahead.

Vishal Biraia — Max Life Insurance — Analyst

Thank you again. My question pertains to fans, as to how was the performance in 1Q? We have gained loss on market share. And this is overall for fans and also within the premium fans. Thank you.

Anil Rai Gupta — Chairman and Managing Director

Can you repeat the question, please?

Vishal Biraia — Max Life Insurance — Analyst

Yeah. My question pertains to premium fans and fans overall, as to how was the performance for us in the first quarter, in the June quarter? Or could you comment also on the market share and the outlook for demand? Would we have seen some amount of down trading there as well?

Anil Rai Gupta — Chairman and Managing Director

So no, I think first quarter, the fans performance was quite positive. You see, again, growth over a disruptive quarter. But in the second half of the quarter, we did see some slowdown in the purchasing. This has to be seen whether it’s in the coming time, whether it was structural in nature or is it just because of high raw material prices and high cost. And hence, we were destocking with the season going away.

If you look at market share, I think our growth, if we compare over the last five years, CAGR has been the highest in the industry. And hence, we have been continuously gaining market share in fans category over the last five years. Quarter-on-quarter, there can be way of comment [Phonetic]. But otherwise, whether it is lighting, fans or Lloyd, our CAGR over the last five years has been the highest in the industry. So I would say that we have gained market share.

Vishal Biraia — Max Life Insurance — Analyst

Okay. Okay. And the other question is on the small appliances. Do you see a scenario of increasing competitive intensity in this space?

Anil Rai Gupta — Chairman and Managing Director

No, it’s already there. It’s a highly competitive business. So we don’t see any increase in competitive intensity.

Vishal Biraia — Max Life Insurance — Analyst

Okay. And this is also a place where the price hikes would have benefited us. So — but we have not seen enough price hikes. So would that also be just largely because of competitive intensity that others have also not taken enough price hikes? Would that be the only factor?

Anil Rai Gupta — Chairman and Managing Director

I think this is, again, similar to Lloyd, it’s a very, very consumer-oriented product. I would say that the industry has taken a view of not entirely passing on the entire cost increase. So yes, over a period of time, this raw material abatement or increased abatement would actually help the margins come back.

Vishal Biraia — Max Life Insurance — Analyst

Okay. Thank you. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Ashish Jain from Macquarie. Please go ahead.

Ashish Jain — Macquarie — Analyst

Sir, I had just one housekeeping question. Can you quantify your market split in AC on 1x basis or 1Q basis?

Anil Rai Gupta — Chairman and Managing Director

No.

Ashish Jain — Macquarie — Analyst

Okay. Okay. Like safe to assume you have 15% plus kind of number?

Anil Rai Gupta — Chairman and Managing Director

No, when I said I don’t want to give a number — I believe we are amongst the top three players in the first six months of the calendar year.

Ashish Jain — Macquarie — Analyst

Okay. Okay. Great, sir. That’s helpful. Thank you.

Operator

Thank you. [Operator Instructions]

Anil Rai Gupta — Chairman and Managing Director

I just want to make one comment on market share. It’s like investment bankers giving a table, everybody tries to give numbers which are suiting them and come from very different sources. There is no one particular source that people use for market share. Hence, I would say, normally, the way we look at market share is CAGR growth over the longer period of time. And again, quarter-on-quarter or half yearly market share don’t mean much. We have to look at the actual performance, which is happening in the market and long-term performance.

Operator

Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments.

Anil Rai Gupta — Chairman and Managing Director

No. Thank you very much for joining on the call. Thank you.

Operator

Thank you. On behalf of InCred Equities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.