Havells India Limited (NSE: HAVELLS) Q2 2025 Earnings Call dated Oct. 17, 2024
Corporate Participants:
Anil Rai Gupta — Chairman & Managing Director
Rajiv Goel — Executive Director
Analysts:
Bhoomika Nair — Analyst
Rahul Agarwal — Analyst
Fatima — Analyst
Saumil Mehta — Analyst
Natasha Jain — Analyst
Siddhartha Bera — Analyst
Aniruddha Joshi — Analyst
Aditya Bhartia — Analyst
Ravi Swaminathan — Analyst
Keyur Pandya — Analyst
Sonali Salgaonkar — Analyst
Dhaval Somaiya — Analyst
Deepak Gupta — Analyst
Achal Lohade — Analyst
Yash Gandhi — Analyst
Nirransh Jain — Analyst
Hardik Rawat — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to Havells India Limited Q2 FY ’25 Earnings Conference Call hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Ms. Bhoomika Nair. Thank you, and over to you, ma’am.
Bhoomika Nair — Analyst
Yeah. Good evening, everyone, and a warm welcome on behalf of DAM Capital to the Q2 FY ’25 earnings call of Havells India Limited. We have the management today being represented by Mr. Anil Rai Gupta, Chairman and Managing Director; Mr. Rajesh Kumar Gupta, Whole-Time Director and Group CFO; Mr. Ameet Kumar Gupta, Whole-Time Director; and Mr. Rajiv Goel, Executive Director.
At this point, I’ll hand over the floor to Mr. Gupta for his initial remarks. Post which, we’ll open up the floor for Q&A. Thank you, and over to you, sir.
Anil Rai Gupta — Chairman & Managing Director
Thank you, Bhoomika. Good evening, and thank you, everyone, for attending the call. Hope you would have reviewed the results by now. We delivered overall healthy performance across categories driven by improvement in consumer demand and pickup for ongoing festive season. Lloyd also delivered a decent growth and continued benefits from cost efficiency initiatives. A steep volatility in commodity prices impacted stable margins as we saw absorption of high-cost inventory against the falling raw material and sales prices during May, August — May to August 2024. As the festival season is slightly earlier this year, we witnessed advancement of advertising spend, thus moderating margins across categories. We expect normalization over subsequent quarters.
Last month, we commissioned our new cables plant in Tumkur, which will scale up over the next few months. Considering the long-term potential demand for higher sized cables, we have committed additional capex of around INR450 crores for expansion in the Tumkur facility.
We can now move to Q&A.
Questions and Answers:
Operator
[Operator Instructions] The first question is from the line of Rahul Agarwal from Ikigai Asset Management. Please go ahead.
Rahul Agarwal
Yeah, hi, very good evening. Thank you for the opportunity. Anil ji, first question was on switchgears. What could be like a sustainable growth rate we should assume for this segment?
Anil Rai Gupta
So I think for this particular quarter, there was a degrowth in the industrial switchgear business, which is part of the business. We did experience because of the first six months of government spend, we did experience decent growth in our residential switchgear and switches and socket segment. So going forward, once the industrial demand also starts coming in, we expect a lower double-digit growth on this.
Rahul Agarwal
Okay. Got it. And second and last question was on emerging categories. It looks like that gaining traction. Within this, which product actually is gaining meaningful scale and could be separated out eventually to track it separately? Any color, sir?
Anil Rai Gupta
Yeah. I think within a year or so, there will be more product categories who are gaining enough sales. We are witnessing good growth in personal grooming segment, air cooler segment, water purifiers. Solar is also delivering decent growth. So I think we’ll look at it for some more time. This is still the investment phase in these categories. So by around next year, we should be looking at moving one or two out.
Rahul Agarwal
Got it, sir. I’ll come back in the queue. All the best and Happy Diwali.
Anil Rai Gupta
Thank you.
Operator
Thank you. The next question is from the line of Fatima from Mahindra Manulife. Please go ahead.
Fatima
Hello, sir.
Anil Rai Gupta
Yes.
Fatima
Sir, what’s your read-through of how the festive is looking like because obviously we’ve heard two-wheeler saying that it’s not that good. So for durables as a category for our individual segments, like what is our thought process on how the demand is shaping up?
Anil Rai Gupta
We’ve seen the quarter start at a very positive note. I think let’s see, some of it could also be because of the fact that Diwali is early this year. So hence, the spend and sales both have started on a good note. Let’s see how it pans out. But I think generally speaking, we are experiencing a better growth this year.
Fatima
Versus last year like-to-like, say, Navaratri or is that a fair assumption or you are just talking about…
Anil Rai Gupta
There’s a positivity on the consumer side this time.
Fatima
Okay. Fair enough. And then secondly, the kind of employee cost that we are running, obviously, we’ve had a lot of expansion. Is this the new run rate or could be even potentially higher because you’ve commissioned a new factory? Because INR450 crores factory annualized you’re running at nearly a INR1,700 crore, INR1,800 crore kind of number. So in a way, the fixed cost structure is moving up and that revenue growth flow through will finally get your margins right.
Anil Rai Gupta
You’re talking about employment?
Fatima
Employee cost, yes.
Anil Rai Gupta
So most of the people costs related to factories is not a part of this, but there is increased investment in fortifying the newer channels, especially the modern format retail and rural areas. So we are looking at more expansions in these areas. And hence, I would say these are a little bit investments for the future. Over a period of time, it will come to normalized growth levels as the sales are increasing.
Fatima
Okay. Can I ask one more question, sir?
Anil Rai Gupta
Yes,
Fatima
Just wanted to understand like we have been margin leaders, right, last 10 years, we’ve always sold industry-leading margins. Do you think that we are pretty much going to get back to that because say last two, three years, you could yes say, demand has not been good and Lloyd was having its challenges. Do you see we are going to be back to that industry-leading margin because even basically every successive quarter we’ve seen a lot of earnings cut more led by margin standby revenues?
Anil Rai Gupta
I think if you look at business-to-business as against competition, our striving is always to remain margin leading businesses. And I think whether it’s consumer durables or lighting or switchgear, we are definitely leading by margins. I think where one could say is Lloyd, we are still in the investment phase and cables and wires, sometimes there is a little bit fluctuations. We definitely see that we will be coming back to normalized margin levels very soon.
Fatima
Okay, sir. Thank you so much and all the best.
Operator
[Operator Instructions] The next question is from the line of Saumil Mehta from Kotak Mutual Fund. Please go ahead.
Saumil Mehta
Yeah. Thanks for the opportunity. Sir, when I look at the lighting and the ECD divisions, now obviously, we have held up contribution margins quite well. But when I look at the EBIT margin, there has been a very sharp moderation while I believe A&P spends and employee costs are up. But going into FY ’26, slightly on the medium-term, how should we look at both the divisions? Is the pricing deflation in lighting behind us? And any color on the ECD portfolio given that the summer portfolio what we also hear from channel checks has been fairly muted in recent times.
Anil Rai Gupta
I think in both these businesses, lighting and ECD, I believe that the company is doing a very good job of premiumizing the portfolio. And hence, we can see again industry-leading contribution margins in the businesses. Here, if you don’t look at quarter-on-quarter, quarter-to-quarter, but generally speaking, lighting even on EBIT margins, we are leading industry by quite a good margin. Electrical consumer durables also as I said earlier in terms of manpower cost, there is some investment baked in, but we will be seeing efficiencies coming in because of this and higher growth. So FY ’26 we will definitely be back to our margins as you have said.
Saumil Mehta
Sure. And my second and last question, while you alluded to a better near-term festive demand, but has it got to do with more of restocking because at least from a counter sales perspective, at least again what we’re hearing is things have been fairly muted while you believe that the festival upcoming is going to be strong. So is it got to do with more that the channel inventory was low and to that extent…
Anil Rai Gupta
I’m can you — the voice is not very clear. Can you repeat your question a bit slowly, please?
Saumil Mehta
In terms of the opening remarks, you mentioned about the upcoming festive demand is panning out quite well. Now this is a bit contrary to when we do our channel checks in the market where we from a consumer point of view, things seem to be muted. So for players like us, is it more of a restocking demand, which probably from a near-term perspective bodes well, but the on ground demand is weak, something on that side? Any color here will be very helpful.
Anil Rai Gupta
Maybe it’s a bit early to say. I would not first of all say restocking or anything. It’s a bit early to say if — maybe there is a little bit of anticipation of the Diwali festival coming in. But I think as I said, it’s early, we’re just in the middle of October. We’ll have to see how it really pans out.
Saumil Mehta
Sure. Thank you so much and all the best.
Operator
Thank you. The next question is from the line of Natasha Jain from Nirmal Bang. Please go ahead.
Natasha Jain
Hi, thank you for the opportunity. Sir, my first question is on Lloyd. Can you first help break the growth in terms of how our RAC [Phonetic] did versus washing machining? And a little bit more color on RAC in terms of how the channel inventory now stands and what is the pricing scenario? Is it still highly competitive and no price hikes? The first question there.
Anil Rai Gupta
First of all, ROCE in this particular quarter is generally a very low quarter and especially because there was a good demand for air conditioners in the first quarter, the consumer pickup in the second quarter has been low. And hence, the growth in non-AC segment for Lloyd has been better than the growth in air conditioner segment, so which also is a positive thing because our focus on building other product categories like washing machines and refrigerators, that’s also panning out well. And so I would say it’s becoming a little bit more balanced, but this particular quarter there’s not much to read on air conditioners because one, generally this quarter is a very low quarter and secondly, it’s coming after a very heavy first quarter.
Natasha Jain
Sir, my question was more on how probably non-RAC did because our channel check suggests that working machine as a category has not picked up despite this profit in the season quarter, the second quarter.
Anil Rai Gupta
Yeah. For us, it’s a bit small category and hence, we are definitely experiencing growth, but it is lower than the other two categories like LED panels and refrigerators.
Natasha Jain
Understood, sir. And sir, my second and last question is on kitchen appliances. So what we’ve understood is from October onwards demand has started picking up on the ground. So can you tell us how kitchen appliances as a category for you it’s looking like? And in terms of competition, what we’ve understood is there are a lot of these premium players who started ruling out mid-premium products. So now even a Bosch has a product category which is equivalent to a Havells pricing. So what’s your sense on that in terms of that competition and cannibalization? Thank you.
Anil Rai Gupta
No. I think we are very positive about our domestic appliances category and it is again as I was saying earlier, it is also one of those products which has started off on a very positive note in the festival times. So we’ll continue to see that. Look, as far as competition is concerned, there is always a push towards trying to cater to different kinds of consumers when there is a product — when there’s a company which is catering to, let’s say, lower set of consumers, they want to go premium, some companies who are only catering to premium, they also want to go. So this competition can keep varying. The whole idea is how we can refresh our product range, make meaningful — make meaning to the consumer and expand the reach to the consumer. I think we are — as far as ECD is concerned, we’re making decent strides in most of the product categories.
Natasha Jain
Thank you, sir and all the best.
Operator
Thank you. The next question is from the line of Siddhartha Bera from Nomura. Please go ahead.
Siddhartha Bera
Yeah. Hi, sir. Thanks for the opportunity. Sir, my question is on the cable and wire segment. We have seen a good pickup there. You mentioned that it has been led by wire. So are we seeing a good improvement in terms of the wire demand and how sustainable should we think about the growth in the coming quarters? And second is the cable facility also, you mentioned that…
Anil Rai Gupta
There was a disconnect. Can you repeat the question again, please?
Siddhartha Bera
Sorry. So on the wire side, you mentioned that we have seen a good improvement. So just wanted to understand how sustainable is it if you look at the traction in the second half? And our cable plant is also, you mentioned that it has got commissioned. So if you look at the cable and wire category as such, I mean, strong double-digit or current momentum sustaining is something can we expect or do you see any challenges here?
Anil Rai Gupta
No. I think as far as wires is concerned, we experienced a bit lower growth in the first quarter because of the fluctuating raw materials and because of the destocking, the second quarter had a good pickup and restocking of the product as well. Unfortunately, the volatility in the raw material during the quarter affected the margins. But I think given the fact that we have been adding capacities at Tumkur, now should augur well for decent growth in both underground cables and rest of it in the coming times.
Siddhartha Bera
And sir, on the profitability, you mentioned that this volatility had impacted current quarter margin. So has the commodity price increases being taken and from next quarter onwards, we should come back to that normalized EBIT margin level?
Anil Rai Gupta
From the third quarter pretty much towards now because, let’s say, maybe October is a bit affected, but November, December, we anticipate unless there’s further volatility. Otherwise, we expect very close to normalized margins in the third quarter and fourth quarter should be absolutely normal.
Siddhartha Bera
And sir, on the ECD side, also you mentioned that there has been some enhanced investment which has been going into emerging channels. So any color here? How much is that impacting our margins and how should we expect that to normalize going ahead?
Anil Rai Gupta
I think channel investment, Siddhartha, I think will be compensated by the increase we will be sort of expecting, which is on these channels in the ECD side. So I think these investments to some extent you should see are for slightly medium-term. And I think this is something we’ll continue to reflect. We don’t expect them to normalize, but we will be sort of offset by the higher growth we are expecting in this category.
Operator
Thank you. The next question is from the line of Aniruddha Joshi from ICICI Securities. Please go ahead.
Aniruddha Joshi
Yeah. Sir, in terms of Lloyd, we had indicated that we will also get into certain exports to Middle East as well as USA markets. Now that was done almost seven, eight months ago the announcements. So any update on that and when should we see the products rollout happening in both these regions? That is question number one. And secondly, if you can indicate the price hikes during the quarter as well as the growth in two verticals, B2B as well as the B2C? Yeah, thanks.
Anil Rai Gupta
On the international side, we have started on the Middle East, but I think it’s early days and for the U.S., the product is under development. I think this is something more probably the next year I think should see some more traction. So I think as the thing develops, we will keep you updated on the same. And second, on the B2B…
Aniruddha Joshi
B2B, B2C growth rates and price hike.
Anil Rai Gupta
This quarter B2B growth rate was about 9% and B2C was 20%. And price hikes, look, if you keep away cables and wires, most of the price hikes have already been taken. Cables and wires is fairly related to the fluctuation in raw material prices.
Aniruddha Joshi
Sure, sir. Understood. Last question, B2C growth has been really pretty strong. So if you can indicate any region-wise color in East, West, North, South where it is doing well or let’s say, urban versus rural, any cuts on or color on that? That’s last question. Yeah. Thanks.
Anil Rai Gupta
I think region-wise it’s pretty much I would say fairly distributed. And as far as urban versus rural, rural, we have started seeing some slowdown in the last year, but now started picking off. So urban has been doing well, but rural has also started picking off.
Operator
Thank you. The next question is from the line of Aditya Bhartia from Investec. Please go ahead.
Aditya Bhartia
Hi, sir. Sir, you spoke about advancement of A&P, but if you look at the overall A&P spend, they have ranged around 3% of revenues, which historically has been our usual run rate. So while I understand that there is a year-on-year increase, but how should we look at A&P spends going forward? Are they going to moderate once the season is over and from a slightly longer-term perspective?
Anil Rai Gupta
2.5% is normally what we have and I think that’s something we expect that by the end of the year, I think you will see pretty much in that range only. But we see 2.5% to 3%. So I think that’s something would remain in that same range.
Aditya Bhartia
Understood, sir. And sir, if we look at the contribution margin across segments, on the contribution margins, margins look pretty okay with some moderation in the wires and cables. But when we look at EBIT margins, the difference is lot higher. So which are those expenses which will have gone up? I understand that there could be that INR28 odd crore of impairment that we have taken. But besides that, is there any other expense that won’t be forming part of the contribution margins, but of EBIT margins, which is impacting the margins?
Anil Rai Gupta
I think primarily it’s coming out of advertisement increase, which is almost worth 50% in this quarter, but also some — as I mentioned earlier, some investments on manpower, so some salary expenses also. So these are the two major things.
Aditya Bhartia
Understood, sir. Thank you so much.
Operator
Thank you. The next question is from the line of Ravi Swaminathan from Avendus Spark. Please go ahead.
Ravi Swaminathan
Thanks for taking my question. If you can give the breakup of cables and wires within the cable segment? And the new facility which has come up, what would be the incremental revenue at peak capacity utilization that can be added to the overall top line of that segment?
Anil Rai Gupta
Sorry, we generally are between 35% to 40% for underground cables and the rest for wires. Second question was, sorry.
Ravi Swaminathan
The incremental revenue at full capacity utilization that can be coming from the cables facilities has come up.
Anil Rai Gupta
So till Tumkur facility came up, we were almost operating at 100% or 85%, 90% capacity utilization for cables, which actually now with the new facility will be at better level. We are also further expanding as I mentioned that we have committed another INR450 crores of expansion in Tumkur facility. So that should bring the capacity utilizations to a normalized level.
Ravi Swaminathan
Understood. And with respect to the lighting business, the pricing bottoming out that has been under discussion for the past three, four quarters or even more than that, especially in the lamps business, any sense on whether it has already bottomed out in the market or it’s still — it will yet — is yet to occur?
Anil Rai Gupta
Hopefully, I think this third, fourth quarter, we will see the bottoming out and next year, we should start seeing, FY ’26, we should start seeing real growth in lighting and yeah.
Ravi Swaminathan
And how would be the breakup between lamps and fixtures for us as of now and what would have been the growth in the lamps business in volume terms this quarter or this year first half?
Anil Rai Gupta
So pretty much what has happened is with the advent of LEDs, now even consumer business how we differentiate it is pretty much a fixture. So actually we now don’t differentiate between lamps and fixtures. So basically consumer luminaires versus professional luminaires where consumer is about 60% of our business and about 40% is professional luminaires. And volume growth in lighting has been 15% this quarter.
Operator
Thank you. The next question is from the line of Keyur Pandya from ICICI Prudential Life Insurance Limited. Please go ahead.
Keyur Pandya
Thank you for the opportunity. Sir, first question on switchgears, switch and switchgears, I think I couldn’t hear it properly. But if I look at switch segment’s revenue growth two year, three year, five year, whichever period we take, it is probably mid single-digit kind of growth. So have we lost share or if you can just throw some light what has happened in the past? And in near future, what kind of growth do you expect? Are you seeing any pickup led by real estate or even otherwise? That is first question.
Anil Rai Gupta
I think last few years, if you recall, the construction activity also has been slow. I think it’s gradually started picking up. And there are three categories within this. I think there is a bit of an offset. I think there have been quarters where we have grown double-digit. This is potential — clearly, the switchgear we all aware that this is a consolidated industry. So I think the potential there is sort of high single-digit and low double-digit. And I think if you combine the three, we believe the potential is pretty much high single-digit and low double-digit. So we see no reason why frankly we should be sort of moving away from that and that’s what sort of we are holding out as well.
Keyur Pandya
Okay. Sir, second, switch gears and ECD, most of these segments probably if I look at longer periods, so switchgears would have seen contribution margin anywhere in the range of 38% to 40% and ECD 23% to 25%. And we are either at the lower range or below that number. So where do we see contribution margin and in turn EBIT margin for both of these categories or is it a new normal?
Anil Rai Gupta
Yeah, I think generally speaking, we — our averaging has been between 38% to 40% for switchgears. And again, as you have said between 22% to 25% EBIT margins. Sometimes we do take a call to invest for the long-term, which comes in the particular quarter for advertising, because this is not a product category where you advertise continuously. This is when you make a birth and then you come back again. So sometimes it can vary, but generally speaking between 22% to 25% is the EBIT margin.
Operator
Thank you. The next question is from the line of Sonali from Jefferies. Please go ahead.
Sonali Salgaonkar
Sir, thank you for the opportunity. Sir, firstly, may we have the guidance of capex for FY ’25, please?
Anil Rai Gupta
So right now, the committed capex from the company in these two in the next coming years is about — already about INR1,900 crores, out of which we believe that about INR1,000 crores will happen in this year. About INR350 crores has already been done in the first half.
Sonali Salgaonkar
Understood, sir. Sir, my second question is, how is the B2B demand doing in terms of the capex cycle and the housing cycle? And also I missed the number that you would have given for the breakup of volume versus value of your cables and wires division.
Anil Rai Gupta
So B2B business on the industrial side is low right now, which generally has been good in the last year. First six months has been low. Hopefully with the government spending now coming back, hopefully we should start reflecting some growth as well. Residential demand from a from a builder’s point of view is regular, is not very good, not very low also. So that’s why we see some decent growth coming in residential switchgear and switches and sockets. So 15% is our volume growth in cables and wires and value growth is about overall 22%.
Sonali Salgaonkar
Got it, sir. Thank you.
Operator
Thank you. The next question is from the line of Dhaval Somaiya from Axis Mutual Fund. Please go ahead.
Dhaval Somaiya
Thank you for the opportunity. Sir, in the previous quarter, you had highlighted that in switches and switchgear segment, the domestic growth was pretty healthy, which is if I recollect correctly, it was 12% on a Y-o-Y basis, but there were some export orders that you had highlighted in the previous quarter, which was supposed to be shifted in this quarter. So sir, if I were to take that into account, the growth in this quarter in switches and switchgears seem to have actually degrown on a Y-o-Y basis. If you can just clarify that? Secondly, I would also understand that if these orders were shifted to Q2, I would believe that the expense for those orders would have been booked in Q1 and hence, the margins should have ideally improved because the cost for those orders were booked in the previous quarter. So if you can just help me understand this better? And secondly, on Lloyd, how should one structurally look at the margins going forward?
Anil Rai Gupta
So as far as switchgears is concerned, on the domestic side, if you look at the residential and consumer switchgear segment, we have seen decent double-digit growth. And as I said earlier that industrial switchgear, there was a significant degrowth, which actually more than much lesser overall growth for the entire switchgear segment. This was not really impacted a whole lot by exports. I have not understood your second part of the question. I don’t even know whether accounting-wise…
Rajiv Goel
No, I think that — the cost will be matched with the revenue. So it’s not that the costs have been booked in the first quarter and the revenue will come in the second quarter. So this is not very clear. So — but there is nothing like that. It’s a matching concept. So the cost will always accompany the revenues.
Anil Rai Gupta
And as far as Lloyd is concerned, I think structurally, we’ve been saying since last year that there is improvement on the cost efficiencies and overall the brand acceptance is getting better and better. So we should see a stronger margins coming in the next one or two years.
Operator
Thank you, Dhaval. The next question is from the line of Deepak Gupta from SBI Pension Funds. Please go ahead.
Deepak Gupta
Hi, good afternoon, sir. My first question is on Lloyd. We’ve been talking about de-risking the portfolio from a long-term perspective and increasing the share of non-air conditioner products in that portfolio. Where are we standing in that journey and how do you see refrigerator and washing machine going forward over the next two to three years?
Anil Rai Gupta
Look, I think, as far as Lloyd is concerned, while our strive is to keep changing the product mix, but the fact is that we are not slowing down on our growth aspirations for air conditioner as well. Having said that, we are quite comforted by the fact that our acceptance of other products which is washing machines, refrigerators and including LED panels is now at a good level. Most of the top A class counters are keeping these products and hence, the growth expectation in the coming years will be quite decent in these product categories also. So while we have maintained that we need a certain threshold level, we believe that our investments over the last two, three years in these non-AC product categories is now really getting fruit.
Deepak Gupta
Understand, sir. And sir, my second question is on consumer durable segment. For the last 2.5 years, we see [Technical Issues] numbers from the company. How do you see that segment shaping up over the next couple of years? And do you think that there is a need of launching newer products and reducing dependence on fans, which still contribute I believe 60%, 65% of that segment for average?
Anil Rai Gupta
So what did you say about last 2.5 years what….
Deepak Gupta
The numbers have been quite flattish on a — whichever way you cut it, it reflects — in terms of top line growth — in terms of top line, the numbers have not really seen much growth.
Anil Rai Gupta
So I think I mentioned earlier that we are now seeing good growth coming both in fan because our acceptance is getting better in regions we are able to even appliances, water heaters, we are experiencing good growth. So I think we are quite bullish about ECD segment as a whole. I don’t think that we really need to add more product categories because we are quite strong in terms of appliances, which is a growth category, water heaters, coolers, these are all categories which could give decent growth to ECD segment.
Operator
Thank you. The next question is from the line of Achal Lohade from Nuvama Institutional Equities. Please go ahead.
Achal Lohade
Yeah, good evening. Thank you for the opportunity. Sir, my first question is within ECD, is it possible to get some color in terms of fans growth? Would it be similar to what’s the segment growth or higher or lower?
Anil Rai Gupta
So it’s not very different than the other product categories.
Achal Lohade
Understood. The second question I had, if I look at the employee cost, it’s up about 20%, 25% for the first half and it has been seeing that kind of a growth increase actually for the last couple of years. Is it fair to say that is a new normal like in terms of penetrating people, the investment in terms of number of employees, the seniority, etc? We’ll keep this cost going up at the same pace or you think it can quickly get normalized?
Anil Rai Gupta
No. I think it will get normalized over next year and next year. But when I say normalized means the growth will be slow. But having said that, we have been investing not only in terms of just reach of people, but also we are investing heavily in expanding our base in R&D. So there are investments that we are making for the future. So we will take a prudent view on balance between present and the future. So I think we’ll look at manpower in a very long-term way, not just for short-term results.
Operator
Thank you. The next question is from the line of Yash from Stallion Asset. Please go ahead.
Yash Gandhi
Hi. Just for the growth between your AC segment and the non-AC segment in the Lloyd’s consumer division?
Anil Rai Gupta
Sorry, can you — what is the question?
Yash Gandhi
My question is, I just wanted to know the volume growth between the AC segment and non-AC segment within Lloyd’s…
Anil Rai Gupta
Your voice is breaking. Can you again repeat, please?
Yash Gandhi
Am I audible now?
Anil Rai Gupta
Yes.
Yash Gandhi
Just wanted to know the volume growth in your Lloyd’s consumer division, if you can spread between AC and non-AC?
Anil Rai Gupta
So the non-AC is higher than the overall Lloyd growth. I think this is that much into what we disclosed in this.
Yash Gandhi
Okay, sure. And within the AC division, are we seeing the channel inventory in the industry? Do you think now it’s sort of a more normalized because the demand is more stable or you think still there’s enough inventory already?
Anil Rai Gupta
No, inventory had been low at the end of the first quarter as well. And so I would say it’s not high at all.
Yash Gandhi
Okay. Okay. Thank you. That’s it.
Operator
Thank you. The next question is from the line of Nirransh Jain from BNP Paribas. Please go ahead.
Nirransh Jain
Yeah, hi, sir. Thank you for the opportunity. Sir, my first question is again on the switchgears. I just wanted to better understand what led to the decline in the contribution margin around the 130 bps decline that we saw in the switchgears on a Y-on-Y basis. Is this because of the industrial switchgear segment has a higher margin or is there anything else to it?
Anil Rai Gupta
I think again as I said, for us, it’s not really a decline because 38% to 40% is something what we strive for. It depends upon the product mix as well. Sometimes switches sales may grow faster or slower as compared to the residential switchgear where there could be different contribution margin. So generally speaking, we are between 38% to 40%.
Nirransh Jain
Right. And sir, I remember that in the previous calls, you have mentioned that the — especially in the telecom OEMs, we can continue to expect to see some degrowth in this financial year. So has anything changed there? Because like as you said previously that we might expect double-digit growth in the second half for this segment.
Anil Rai Gupta
Yeah, I think it’s the same. So we are not seeing — we are seeing actually degrowth in that segment, which is affecting the growth of residential switchgear, though it has increased double-digit, but still we are seeing degrowth in this particular segment.
Operator
Thank you. The next follow-up question is from the line of Fatima from Mahindra Manulife. Please go ahead.
Fatima
Hello, sir. Sir, the cables and wires the new factory, so last year we did around the cables and wire, which is around INR1,600 crores of revenue. So is there any way one can say that the capacity that we are currently adding is potentially sort of double our revenue or like what is the kind of asset to sales ratio that one can guess?
Anil Rai Gupta
I think this is what we said 25% on cables. So I don’t think that it will double from this and that’s why you would have noticed that we have also announced another expansion in Tumkur after this. So I think in two to three years, you will see at least 50% to 60% capacity addition for the medium voltage underground cables.
Fatima
And sir, what is the kind of demand for us?
Anil Rai Gupta
As of now, the demand environment remains robust on the cable side.
Operator
Thank you. The next follow-up question is from the line of Keyur Pandya from ICICI Prudential Life Insurance Limited. Please go ahead.
Keyur Pandya
Thank you. I just want to understand in the Lloyd, washing machine and refrigerators, contribution margin wise would they be higher than AC or contribution or EBIT just as a starting point? Earlier as you mentioned that the work that we have done to establish brand Lloyd, the efforts would be relatively lower versus AC. So in that backdrop, I mean, just you can just talk about the hierarchy of contribution margin.
Anil Rai Gupta
The contribution marginally non-AC, actually right now will be slightly lower than AC because there’s a lot of outshore items as well. As you bring them in-house, I think those margins will improve. But I think let’s agree that the most of the margins are driven by the AC because still the 78% of the business is air conditioner. But it’s not something which is really dragging too much. So I think there will be expectation on improvement in non-AC as well. But while they are not sort of at the same level, because there is good improvement in the AC margins, you see, they are not at the same level as the AC is.
Keyur Pandya
Okay. Understood. Okay. Thanks a lot. Thank you and all the best.
Operator
Thank you. The next question is from the line of Hardik Rawat from IIFL Securities. Please go ahead.
Hardik Rawat
Thanks for the opportunity. Sir, could you please explain how price transmission actually takes place in our cables and wires segment? Is it with a month lag? How are the increase or decrease in the metal prices passed on under both our cables businesses and wire businesses?
Anil Rai Gupta
Yeah. Generally speaking, it takes a little bit of time because short to medium-term fluctuation and hence it first takes 15, 20 days to actually decide whether this situation is the normal. And then if it is prevalent, then prices are passed on to the market. Usually speaking, if the commodity prices start going down, it’s passed on to the market very quickly because that’s the expectation and the trade starts holding back. But if the prices go up, then there is a general lag in terms of being able to pass on the entire thing because the competition also starts delaying the price increase. So when there is high-level of fluctuation, it generally affects the margins in that particular month quarter.
Hardik Rawat
Okay. And this will be the same in case of both cables and wires. So no difference between the two categories?
Anil Rai Gupta
That is true.
Hardik Rawat
All right. And…
Anil Rai Gupta
Higher fluctuation in copper, which is mostly used in domestic wires and impacts us more because 65% of our business is [Indecipherable].
Hardik Rawat
And with the wires sales picking up, do you foresee the margin should going-forward be better as…
Anil Rai Gupta
Should be better because this was again as I said a particular quarter where fluctuation happens, otherwise margins will be better.
Hardik Rawat
And lastly, if you can — if you could provide a breakup of your ECD sales within fans and other categories, whatever.
Anil Rai Gupta
We don’t do that.
Hardik Rawat
Okay. Thank you so much.
Operator
Thank you. Ladies and gentlemen, we’ll take this as a last question. I would now like to hand over the conference to Ms. Bhoomika Nair for closing comments.
Bhoomika Nair
Yes. I would just like to thank all the participants for being on the call and especially the management for giving us an opportunity to host and answering all the queries quite a bit. Thank you very much, sir, and wish you all the very best.
Anil Rai Gupta
So thank you very much everyone for joining the call. Happy Diwali to everyone. Thank you.
Operator
[Operator Closing Remarks]