Havells India Limited (HAVELLS) Q4 FY23 Earnings Concall Transcript

Havells India Limited (NSE:HAVELLS) Q4 FY23 Earnings Concall dated May. 03, 2023.

Corporate Participants:

Anil Rai Gupta — Chairman And Managing Director

Unidentified Speaker —

Rajesh Kumar Gupta — Whole-Time Director (Finance) and Group CFO

Analysts:

Rahul Agarwal — InCred Equities — Analyst

Ravi Swaminathan — Spark Capital — Analyst

Renu Baid — IIFL Institutional Equities — Analyst

Siddhartha Bera — Nomura — Analyst

Sonali Salgaonkar — Jefferies — Analyst

Latika Chopra — J.P. Morgan — Analyst

Charanjit Singh — DSP Mutual Fund — Analyst

Swati Jhunjhunwala — BOB Capital Markets Ltd. — Analyst

Abhijit Akella — Kotak Securities — Analyst

Aakash Jhaveri — Perpetual Investment Advisors — Analyst

Achal Lohade — JM Financial — Analyst

Aniruddha Joshi — ICICI Securities — Analyst

Abhilasha Satale — Quantum AMC — Analyst

Alok Deshpande — Nuvama Wealth — Analyst

Akshen Thakkar — Fidelity International — Analyst

Indrajit Agarwal — CLSA — Analyst

Pulkit Patni — Goldman Sachs — Analyst

Rakesh Roy — Omkara Capital — Analyst

Amit Bhinde — Morgan Stanley — Analyst

Amit Mahawar — UBS — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Q4 FY ’23 Earning Conference Call of Havells India Limited, hosted by InCred Equities. [Operator Instructions] Please note that this conference is being recorded.

I’ll now hand the conference over to Mr. Rahul Agarwal. Thank you and over to you.

Rahul Agarwal — InCred Equities — Analyst

Thank you, Deepa [Phonetic] Good evening to everyone on the call. InCred Equities welcomes you to discuss the fourth quarter fiscal 23 results of Havells India Limited. We thank the management team for giving us this opportunity to host the call. We have with us the senior management team of Havells Indiam represented by Mr. Anil Rai Gupta, the Chairman and Managing Director of the company; Mr. Rajesh Kumar Gupta, Director of Finance and Group CFO; Mr. Ameet Kumar Gupta, Whole-Time Director; and Mr. Rajiv Goel, Executive Director.

I will 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

Good evening. Thank you very much, Rahul. Good evening, everyone. Thank you for joining the call today. I hope you have reviewed the results published today. It’s been a moderate performance given the fact that we had a subdued consumer demand but also buoyed by a good industrial insider demand. The B2B segment has seen steady demand led by infrastructure and housing activity has also revived in the second half. ECD witnessed weak performance given the fan industry’s stocking scenario in the third quarter. Lloyd maintain its growth trajectory. During the quarter, we commenced production in our new AC plant in Sri City which doubles our AC manufacturing capacity to 2 million ACs per year.

Contribution margins have improved across segments. We are witnessing a delayed summer which might impact the demand for summer products for the season.

That’s all from my side for my opening remarks. We can now proceed for Q&A.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Ravi from [Indecipherable] Spark. Over to you.

Ravi Swaminathan — Spark Capital — Analyst

Hi, sir. My first question is with respect to the core business. As you had mentioned, the consumer demand had been weak. And because of that, during that had been a mid-single-digit kind of growth. My question to you is, going forward, given the fact that consumer sentiment continues to remain weak, do we expect the core business for current running year, that is FY ’24, to be at the same momentum, or is — are we doing something to take the growth back to double digit kind of growth?

Anil Rai Gupta — Chairman And Managing Director

In terms of few things, we are definitely doing all the things we need to do whether it’s brand-building, distribution reach, and all, we are continuing to do our work. Yes, we saw some subdued demand in the second half of the year. But also, sort of we are enthused by the fact that we — what we hear and receive from the market is that the real estate sector has started seeing new construction. So — which might be visible from the fact that some sort of uptick has been seen in the wire and cable business, in the switchgear business. So, that may lead to some increased consumer demand in the coming months. So, we are hopeful on both sides, so consumer demand should do well. And the industrial and infrastructure demand continues to do well, at least in the last six months. So, I think going forward, we’re not expecting this low momentum to continue.

Ravi Swaminathan — Spark Capital — Analyst

[Technical Issues] ratio at an overall level, any — what is that ratio?

Anil Rai Gupta — Chairman And Managing Director

It’s approximately — it remains at 70-30, 75-25. But this quarter, particularly, it was around 70-30. Even if, generally in the fourth quarter, there is some increased demand for industrial and government project products. So, in this quarter, it was down 70-30.

Ravi Swaminathan — Spark Capital — Analyst

Okay. And is there any big difference in the profitability of B2B and B2C?

Anil Rai Gupta — Chairman And Managing Director

Depending upon the product to product, yes, in cable — underground cables and wires, domestic wires is more profitable. In lighting, pretty much the profitability is similar. In switchgears also.

Ravi Swaminathan — Spark Capital — Analyst

Got it, sir. I’ll come back in the queue if I have more questions.

Operator

Thank you. The next question is from the line of Renu from IIFL. Thank you. You can go ahead.

Renu Baid — IIFL Institutional Equities — Analyst

Yeah. Good evening, team. My first question is on Lloyd. If you can share as an overall this year, we’ve continued to focus on very high volume-driven growth and towards the end of the year in 4Q, clearly at the EBIT level, losses have trimmed down. So, from a yearly performance, in your view, how has Lloyd done both in terms of volume share in the RAC market and performance in non-RAC products like washing machines and ref? And from a margin outlook perspective, in your view, in FY ’24, what needs to be done so that the business is back in blue and profitable?

Anil Rai Gupta — Chairman And Managing Director

So, on the volume side, ACs continue to be the mainstay and almost 70% of revenues come from air conditioners. And that’s where we definitely believe that there is a good opportunity for Lloyd to maintain its top three position in the market. And we’re continuing to give our focus there. We have a lot of white spaces including — in certain markets where Lloyd was hitherto not present like the western part of India, eastern part of India, where we are gaining traction and market share. So, that continues to remain as a growth strategy for Lloyd.

On the margin front, last year, there were unprecedented increase in raw material prices, and the entire cost was not passed on to the market. And over the next few quarters, we do believe that there will be some softening of the raw material prices. Lloyd’s market positioning will also be in a position where we will be able to pushing our premium products as well as product mix for a change. So, profitability is definitely something in mind, and margin expansion is definitely in mind and it will continue to happen. It’s a long — it’s a journey and it will continue to happen.

Renu Baid — IIFL Institutional Equities — Analyst

Sure. And how was the performance of the non-RAC portfolio of washing machines and ref where we had capacity expansion, new models being launched? And aligned with this, what has been the cost under recoveries or investment in the ref portfolio for fiscal ’24?

Anil Rai Gupta — Chairman And Managing Director

So, I think overall, both ref, washing machine, and LED TVs are growing at a decent pace. I would still say that it’s not really at a very fast pace given the fact that the base is low, but it is — the acceptance in the trade and it’s catching up. So, it is growing decently well. And I think the benefit that we get in washing machines is definitely more because we have [Technical Issues] Over a period of time, we’ll start making some more advantage in refrigerators also. I think, refrigerators, there’s still a longer journey. But washing machines is a positive growth trajectory for us.

Renu Baid — IIFL Institutional Equities — Analyst

Sure. And lastly if I can ask one more question. Given that in general demand for consumer products or consumer demand is weak, not much of price actions were taken in this quarter for fans or Lloyd in other categories, so how are we looking at the pricing environment moving ahead in FY ’24? And are any price hikes being announced or already planned, which will be transmitted to the market in the coming quarters? Thank you.

Anil Rai Gupta — Chairman And Managing Director

I think after some time, we have seen some stability in pricing, and it’s not required actually to — the only way — place where we’ve seen some volatility in the fourth quarter was cables and wires. Otherwise, generally speaking, in other product categories, there is stability in pricing. And I hope it continues to remain so for the next few quarters.

Renu Baid — IIFL Institutional Equities — Analyst

Got it. Okay. Thank you so much and all the best, sir.

Anil Rai Gupta — Chairman And Managing Director

Thank you.

Operator

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

Siddhartha Bera — Nomura — Analyst

Yeah. Hi, sir. Thanks for the opportunity. Sir, first question on the, like on the consumer side, you said the demand has been soft. But if we look at advertisement spend, it is about 2.5%, and still lower than what we have seen in the past of in the range of 3% to 4%. So, do you think this can be one lever to sort of look at to drive more growth in the coming year?

Anil Rai Gupta — Chairman And Managing Director

So, generally speaking, product — overall, 2.5% is coming. Last year — last couple of years, it was subdued because of COVID and coming out of COVID. We do believe that given the product mix that that we’ll continue to drive. Around this level, we’ll continue it even in the future. So, there will be continued investment in brand-building over the next few years.

Siddhartha Bera — Nomura — Analyst

Got it. And second, sir, on the growth side of the switchgears. We have seen a big improvement on the growth. So, is there any pent-up demand which has also come through the quarter, or these are the levels which we should expect in terms of the run rates to continue?

Anil Rai Gupta — Chairman And Managing Director

I think let’s not over-read the switchgear growth based on one quarter, because sometimes it happens, there are certain quarter-ending push which happen. Maybe in the last quarter and this quarter it could have been different, pricing change, [Indecipherable] might have been different. But definitely there is some uptick in the real estate environment in the last six months. So, that has also helped switchgear. On the industrial switchgear side also, there has been increased spending by the government infrastructure projects. So, both are getting benefited in the fourth quarter. But let’s — as I said, let’s not base our future projections just based on one quarter here.

Siddhartha Bera — Nomura — Analyst

Got it, sir, Sir, last question on the Lloyd side. So, this is a season quarter and if you see the capital employed, that has kept on going up even at the end of this quarter as well. So, do you think, I mean, this will continue to inch up as we grow or we should expect some normalization at some point in the future?

Anil Rai Gupta — Chairman And Managing Director

I think in case of Lloyd, the kind of growth that we were getting in the third quarter, so we were quite hopeful that we’ll have a very good summer, for which we had been building inventory for the month of March, April, May, June. And the Sri City plant also started production around February and March only, around March. So, basically, it was dependent on one plant. So, we have been building inventory. And unfortunately, the end of the quarter, March, we saw some lower demand because of the weather change And so hence, a high level of inventory in case of Lloyd at the end of the quarter. In fact, with the Sri City plant coming up, we will see more balancing in inventory in the coming times for ACs.

Siddhartha Bera — Nomura — Analyst

Got it, sir. Thanks a lot. 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 Sonali Salgaonkar from Jefferies. Please, go ahead.

Sonali Salgaonkar — Jefferies — Analyst

Sir, thank you for the opportunity. Sir, my first question is regarding the capex guidance. We have seen that there has been an increase in capex this year. Sir, possibly, any guidance you could share over the coming two years?

Anil Rai Gupta — Chairman And Managing Director

So, this year, we’re looking at about INR600 crores with the Tumkur facility also coming up in this year, near about INR600 crores in this coming year.

Sonali Salgaonkar — Jefferies — Analyst

Right. And post that, should we expect some normalization in capex, probably reversal to…

Anil Rai Gupta — Chairman And Managing Director

Yeah. There would be normalization because two new facilities that will be coming up in ’22, ’23 and ’23, ’24.

Sonali Salgaonkar — Jefferies — Analyst

Understand. Sir, secondly, you did mention that in Q4, there was some pricing volatility in cables and wires. So, could you quantify the price hikes that you have taken in cables and wires? And secondly, post the transition to new BEE norms, have you also hiked prices in the new models of fans and air conditioners?

Anil Rai Gupta — Chairman And Managing Director

So, cables and wires, when I say volatility, actually, it’s happened both ways. So, if you see volume growth, value growth is the same, volume growth is the same as our value growth. And the volatility was to the extent that sometimes the raw materials went up and sometimes it came down. So, there was a little bit of uncertainty in terms of the channel, in stocking requirement. Hence, I say that there was volatility. Overall, the prices have not increased. Yes, there was an increase in the prices of fans because of the rating change from January 1.

Sonali Salgaonkar — Jefferies — Analyst

And that would be?

Anil Rai Gupta — Chairman And Managing Director

Sorry?

Sonali Salgaonkar — Jefferies — Analyst

What could be the quantum of price hike, sir?

Anil Rai Gupta — Chairman And Managing Director

Around 5% to 7% on an overall basis.

Sonali Salgaonkar — Jefferies — Analyst

And is this margin-accretive as well?

Anil Rai Gupta — Chairman And Managing Director

Margin-neutral, I would say.

Sonali Salgaonkar — Jefferies — Analyst

Understand. Sir, and last question from my side. Could you possibly quantify the volume share gains in Lloyd in the past 12 months, because we have done exceedingly well on the sales?

Anil Rai Gupta — Chairman And Managing Director

No, I think that we are not looking at. As we said, we believe we are gaining market share and I think we continue to be top three.

Sonali Salgaonkar — Jefferies — Analyst

And would you continue to invest more in brand-building in Lloyd?

Anil Rai Gupta — Chairman And Managing Director

Definitely.

Sonali Salgaonkar — Jefferies — Analyst

Got it, sir. Thank you.

Operator

Thank you. The next question is from the line of Latika Chopra from JPMorgan. Please, go ahead.

Latika Chopra — J.P. Morgan — Analyst

Hi. Thank you for the opportunity. I just wanted to delve a little bit into the ECD segment. For the second half of the fiscal year, assuming there was a stocking up done in Q3, the revenues are down 5%. You just mentioned a price increase that you took which got reflected probably in Q4. How has the performance been of the non-fans portfolio? And how should one think about the growth here? A large chunk of this business is B2C as we look into FY ’24. Contribution margins seemed to have held out better now with given your outlook on commodity prices. Is there scope to improve these further?

Anil Rai Gupta — Chairman And Managing Director

So, I think second half definitely has been slow in terms of consumer products have been turned. And one of the concerns that we also saw was the besides the fact that the third quarter was shelf-filling and fourth quarter was a reduction. And also because the prices went up so the channel was also waiting for new channel buildup during the month of March. So, overall, fans suffered because of that. But overall, I would say, consumer demand has been weak and — which has actually seen, like the rest of the products have also seen a flattish growth in the second half of the year.

Latika Chopra — J.P. Morgan — Analyst

And how are you thinking about margins going forward given your view on raw material pricing?

Anil Rai Gupta — Chairman And Managing Director

I think what we’ve seen over third and fourth quarter is because there is now stability in raw materials and the prices have settled, we believe that if this situation continues, there will be some normalization of margin levels to the previous levels, what we used to have. In the last one or two years, if you’ve seen that we have not been passing on the entire cost increase to the market.

Latika Chopra — J.P. Morgan — Analyst

Sure. And if you benchmark your market shares in fans, sir, in the last one, one and a half years, how has Havells fared? And any parts of the portfolio you think you want to get more aggressive on market share front and that could imply that — and brand investments could rise? Why I’m asking this is that if you want to grow double-digits, would you be okay with an aggregate margin profile of 11%, 12%? Is that the buildup that we should think about at an aggregate company level for you?

Anil Rai Gupta — Chairman And Managing Director

I think the margin levels we drive more from gaining market shares, expansion of premium products in the portfolio, brand-building, market pricing. So, that’s not really related with the overall market share increase. So, margins go separately. We do believe over the last couple of years, we have gained market share in the fans business, and we’ll continue to do so. Going forward, there will be more focus, which has always been there, one on the energy-saving products, as well as on the premium category products. And that’s how we maintain the margins for this category.

Latika Chopra — J.P. Morgan — Analyst

Okay. My observation is more that in a slow demand environment, would there be more competitive activity to at least move market shares to drive top-line growth? And hence, I just thought maybe investments would increase going forward. But thank you for your comments.

Operator

Thank you. The next question is from the line of Charanjit Singh from DSP Mutual Fund. Please, go ahead.

Charanjit Singh — DSP Mutual Fund — Analyst

Yeah. Hello, sir. Thanks for the opportunity. Sir, my first question is on Lloyd. So, while you have put in a lot of effort in terms of now having the manufacturing facility in Sri City and also the distribution in place, sir, in terms of target market share from here on, what it would look like? And from the industry margin perspective, do you think there has been a significant reset in industry margin on a downward side, which would now maybe sustain at the levels what we have not seen earlier? That’s the question.

Anil Rai Gupta — Chairman And Managing Director

I think overall market share, we continue to maintain that we want to be amongst the top three players. And we do believe that Lloyd has a good potential to continue to be one of the leaders there. On the margin front, I think what we’ve seen in the last three or four years, AC industry has really gone through trouble times because of COVID earlier, and then very high raw material prices. I think going forward, we will see some stabilization in the overall industry, which will definitely help Lloyd also, but overall, the industry should also be stabilized in terms of margins. Yes, there might have been reduction in margins overall as an industry. But that was also due to very unprecedented times in last three or four years.

Charanjit Singh — DSP Mutual Fund — Analyst

Okay. And, sir, if we look at the ex of Lloyd portfolio, we have elections coming up in the the subsequent quarters. How is the kind of growth expectation if we have to look at from B2B perspective and B2C perspective? If you can give some quantitative as well as qualitative comments on the growth outlook going forward.

Anil Rai Gupta — Chairman And Managing Director

I believe that while generally, there is always an expectation before elections that the industrial and government infrastructure demand should improve, but actually, we’ve seen this increase in improvement in the last one year. So, we hope — we believe that this will continue to improve. Going forward, I don’t think the other part of the portfolio is so much election-dependent, but more dependent upon the real estate uptick, what happens in the market, the consumer demand sentiment. Overall, I would say both positive, but the real estate is doing well. But on the other hand, the negative is that the interest rates are high, which definitely increases inflation and also reduces the ability for a a consumer to buy. So, there has to be a balance to be looked at. I would not relate it to much to the election here.

Charanjit Singh — DSP Mutual Fund — Analyst

Got it, sir. That’s all from my side. Thanks for taking my questions.

Anil Rai Gupta — Chairman And Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Swati Jhunjhunwala from BOB Capital. Please, go ahead.

Swati Jhunjhunwala — BOB Capital Markets Ltd. — Analyst

Yes. Hi. Thank you for taking my questions. So, first, can you just give me some color on what was volume growth in the wires and cables segment?

Anil Rai Gupta — Chairman And Managing Director

Same as the value growth, around 6% to 7%. All right. And so the capex that you are planning to do, the INR600 crore capex next year, will that be through debt or through internal? It’s internal.

Swati Jhunjhunwala — BOB Capital Markets Ltd. — Analyst

Internal? Okay. And are there any price hikes that you’re planning to take further during the quarter?

Anil Rai Gupta — Chairman And Managing Director

As I’ve already said that we believe that there is some stability in the raw material prices. So, we do not anticipate any price hikes.

Swati Jhunjhunwala — BOB Capital Markets Ltd. — Analyst

All right. And lastly, sir, we have, like we’ve heard from other competitors that Lloyd is gaining market share in the last, I would say, six to seven months. So, could you just give me any sense of what it is right now? And how much do you expect this to go in this AC season that’s about to come?

Anil Rai Gupta — Chairman And Managing Director

You see, I think, there are very different market share numbers from different market reports. So, we actually go in by the industry numbers. And we do believe that we are amongst the top three. Over the last one year or so, one, one and a half years, we’ve moved from top fifth position to the top three position. So, our aim is not to be like number two or number one. Then it becomes like a race kind of a thing. We hope to be amongst the top three in the coming time.

Swati Jhunjhunwala — BOB Capital Markets Ltd. — Analyst

All right. Thank you so much.

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 afternoon and thanks so much for taking my questions. I just have a couple of clarifications to seek. One is within the ECD segment, if you could, please, just help us understand what proportion would be the fans business? And then also in terms of this channel stocking, etc. that impacted demand in both the fans as well as the cable segments, is that largely done, and do you see the situation normalizing going forward here onwards?

Anil Rai Gupta — Chairman And Managing Director

I think from a channel stocking point of view, things have normalized, though there is some impact on the — weather impact on the fans business particularly. Otherwise, generally, the channel is at normal inventory levels. Usually, the fans, again, season-to-season or quarter-to-quarter, it can vary, but around 60% comes from fan as [Speech Overlap]

Unidentified Speaker —

This quarter 65%.

Anil Rai Gupta — Chairman And Managing Director

This quarter 65% because it’s summer.

Unidentified Speaker —

Correct.

Abhijit Akella — Kotak Securities — Analyst

Understood. Thank you. And also just to add, the newer models of the energy efficient fans, have they started to experience a significant pickup now or — and are the older models depleted now from the channel?

Anil Rai Gupta — Chairman And Managing Director

Yeah. The first quarter after January, February, older models have almost finished and it’s all the new ratings now.

Abhijit Akella — Kotak Securities — Analyst

Got it. And one last thing is on the AC category. In the context of all these new capacities coming up in India under the PLI scheme for various kinds of components, would you sort of anticipate an increase in competitive intensity in the next year or two as maybe the industry sort of competes to sell out all the additional capacity that has been created? How would you see pricing and margins trending in the market in that backdrop?

Anil Rai Gupta — Chairman And Managing Director

So, I think, as you have also said, that this is for the components, so I don’t see any reason why that should increase the competitive intensity.

Abhijit Akella — Kotak Securities — Analyst

Would the more backward-integrated producers have a competitive advantage, sir, compared to someone who is maybe more dependent on importing from China in terms of these components going forward?

Anil Rai Gupta — Chairman And Managing Director

Not really, because most of these component suppliers are also setting up manufacturing facilities in India.

Abhijit Akella — Kotak Securities — Analyst

Okay. Thank you so much, sir. All the best.

Operator

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

Aakash Jhaveri — Perpetual Investment Advisors — Analyst

Good evening, and thank you for the opportunity. My first question is on the BLDC segment that how is the current demand with from Jan 1 onwards? And how are you expecting this demand to be going forward?

Anil Rai Gupta — Chairman And Managing Director

I think with the new ratings change, BLDC will definitely see more pickup in the coming time. So, many of our categories in fans now are the BLDC model-based. So, it’s a larger portfolio. It will take time because of the cost difference, but it will be much faster than if the ratings change would not have happened.

Aakash Jhaveri — Perpetual Investment Advisors — Analyst

Sure. And in the industry, we’ve heard that there were some quality issues with regards to BLDC, one of our competitors mentioned that. So, did we face any quality issues as such, or we were largely insulated from that?

Anil Rai Gupta — Chairman And Managing Director

We’ve not faced any quality issues.

Aakash Jhaveri — Perpetual Investment Advisors — Analyst

Sure. Thank you so much. That’s all from my end.

Operator

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

Achal Lohade — JM Financial — Analyst

Yeah. Good afternoon. Thank you for the opportunity. My first question is on the switchgear business. You said in the press release that it’s a better product mix which has driven this. [Speech Overlap]

Anil Rai Gupta — Chairman And Managing Director

Sorry, Achal. Can you repeat the question?

Achal Lohade — JM Financial — Analyst

Sure. In the presentation, you have mentioned that switchgear margin improvement is driven by the product mix. Can you elaborate a little bit more as to what has driven this substantial margin improvement? And how do we see the margins for switchgear business going forward?

Anil Rai Gupta — Chairman And Managing Director

So, switchgear business, I would not say it’s because of the product mix, but also because of higher sales and operating leverage. But generally speaking, other than the very volatile raw material market condition in the last one, one and a half years, generally, they remained stable between 37% to 40%.

Achal Lohade — JM Financial — Analyst

Understood. And my second question was on the Lloyd business. If you look at the contribution margin improvement Q-o-Q is 250 basis points, while the EBIT margin improvement is 810 bps. Obviously, there is an operating leverage. But I just wanted to check would there be a reduction in the A&P as a percentage of revenue Q-o-Q for Lloyd?

Anil Rai Gupta — Chairman And Managing Director

No, I think Q3 to Q4 comparison is not a comparison both in terms of operating leverage, even in A&P, because most of the A&P happens in the fourth quarter and the first quarter. It’s not really a good comparison to make from the quarter. I think Y-o-Y we will be able to compare better then.

Achal Lohade — JM Financial — Analyst

And would you say that the A&P has increased in the similar fashion what it is for the aggregate company?

Anil Rai Gupta — Chairman And Managing Director

Yes.

Rajesh Kumar Gupta — Whole-Time Director (Finance) and Group CFO

Yeah. Lloyd A&P has increased in Q4, because Q4 and Q1 are the sort of months where most of the A&P is spent on Lloyd.

Achal Lohade — JM Financial — Analyst

Would you be able to quantify, Rajesh ji?

Rajesh Kumar Gupta — Whole-Time Director (Finance) and Group CFO

Yeah. Actually that number will not be there. Maybe, I think we will not give the disaggregated number.

Achal Lohade — JM Financial — Analyst

Got it. And just one more question I had. Is it possible to get some sense about the exports revenues for FY ’23 as a whole, and what has been the growth? And how do you see this in terms terms of switchgear, cables and wires? Any other products exports we can talk about?

Rajesh Kumar Gupta — Whole-Time Director (Finance) and Group CFO

The exports sale has been around INR550 crores, which is pretty flat on the last year. So, hopefully, we’ll see better days ahead.

Achal Lohade — JM Financial — Analyst

Got it. And just last question, if I may. With respect to the new AC facility in Sri City, what is the revenue potential from this particular facility?

Rajesh Kumar Gupta — Whole-Time Director (Finance) and Group CFO

This facility is for one million ACs. And so, as we said in the beginning, we doubled our capacity from existing one million to two million ACs.

Achal Lohade — JM Financial — Analyst

Right. In terms of the revenue?

Rajesh Kumar Gupta — Whole-Time Director (Finance) and Group CFO

Revenue could be in this, between, let’s say INR2,700 crores to INR3,000 crores.

Anil Rai Gupta — Chairman And Managing Director

It depends whether — when we are able to achieve [Speech Overlap]

Achal Lohade — JM Financial — Analyst

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

Anil Rai Gupta — Chairman And Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Aniruddha Joshi from ICICI Securities. Please, go ahead.

Aniruddha Joshi — ICICI Securities — Analyst

Yeah. Thanks for the opportunity. Sir, two questions. Can you indicate the brand-wise revenue growth rates, Havells, STANDARD, REO? Which brands have done the highest growth in FY ’23? And secondly, can you indicate the growth rates on a region-by-region basis? At least what we understand that North and East is doing relatively weaker. So, how is Havells doing in these regions? And lastly, the revenue growth rates in urban versus rural markets. And the last question, what is the final number of retail outlets at the end of FY ’23? Yeah. Thank you.

Anil Rai Gupta — Chairman And Managing Director

Yeah. So, all these three — first three questions, we don’t — I don’t know whether you’ve followed Havells in the past. We don’t give disaggregating numbers of various brands or regions or even sometimes for categories in India as well. We will refrain from answering that question. In terms of retail outlets, we do believe given the fact that we are into both rural now and the semi-urban, we do believe that we cater to more than 200,000 retail outlets. But on a regular basis, it is not necessarily 200,000, but we are — our distribution now caters to more than 400,000 retail outlets.

Aniruddha Joshi — ICICI Securities — Analyst

Okay. Sure, sir. Thank you.

Operator

Thank you. The next question is from the line of Abhilasha Satale from Quantum AMC. Please, go ahead.

Abhilasha Satale — Quantum AMC — Analyst

Yeah. Hello, sir. Thank you for giving the opportunity. Sir, my question is, again, related to Lloyd. I want to know how much is the channel inventory and inventory at the company level? And how do you see demand panning out for this season? And, sir, with this capacity, Sri City capacity coming, do we have a target to breakeven Lloyd in this year?

Anil Rai Gupta — Chairman And Managing Director

So, the channel inventory was high, company inventory was also high at the end of March. So, because the summer did not kick in as anticipated, it did come in [Speech Overlap] and the boom started in the month of March. And even in the first quarter, things are — the season is not really the way it should be. So, we will see how it goes in the next couple of months because the AC season generally is up to June. So, we’ll see how it goes. And as far as the breakeven is concerned, I think it’s a bit of a journey we’ve always said. We are right now wanting to utilize our capacities both in Ghiloth and Sri City. And over a period of time, with brand-building, distribution, stock premiumization, product mix, we should definitely reach profitability sooner than later. But let’s see how much time it takes.

Abhilasha Satale — Quantum AMC — Analyst

Okay. So, in terms of inventory, can you just quantify, like normally — as compared in a normal level when we entered the season, how much higher inventory was? And as we are into the season, how are you seeing demand panning out?

Anil Rai Gupta — Chairman And Managing Director

I’ll also said — I’d say it’s difficult to quantify how much inventory is lying in the system. And I’ve already said, in the month of April also, things are not the same as what an April summer should be.

Abhilasha Satale — Quantum AMC — Analyst

Okay.

Anil Rai Gupta — Chairman And Managing Director

Thank you.

Abhilasha Satale — Quantum AMC — Analyst

Thanks.

Operator

Thank you. The next question is from the line of Alok Deshpande from Nuvama. Please, go ahead.

Alok Deshpande — Nuvama Wealth — Analyst

Yeah. Hi. Good afternoon, everybody. Just one question on Lloyd. Given the market share that Lloyd has gained over the past couple of years coming into the top three now, I just wanted to understand what were the key — what was the key strategy there? And how much would you attribute to pricing and how much would you attribute to penetration of the dealer distribution network? And would that now change going forward given that you’re already in the top three? Is there any change of guard there?

Anil Rai Gupta — Chairman And Managing Director

So, I think, we’ve always maintained that Lloyd always had a great opportunity, because there were too many white spaces. Lloyd was a very distribution-oriented business. It was not present in many channels like modern format VKI [Phonetic], regional resellers. In the last two or three years, with the coming of Havells, that relationships have been cruised from Havells to Lloyd. A lot of them — new channels have been added, new markets have been added, like for example, Havells has always been strong in the eastern region, Lloyd was pretty much nonexistent in the eastern region, so new markets have been added. A lot of brand-building has happened. A lot of additions have happened. So, these are the benefits of gaining market share. I would not say that we have gained a lot of market share in the existing markets. New markets products, new markets were added to the overall market.

Alok Deshpande — Nuvama Wealth — Analyst

And then once these white spaces have now been covered, will the strategy change significantly going forward, or will this continue?

Anil Rai Gupta — Chairman And Managing Director

I think we are still at the starting of these relationships in the channel. So — and the consumer brand-building is continuing to happen. So, I don’t see any reason why this should change, so this should continue.

Alok Deshpande — Nuvama Wealth — Analyst

Sure. Understood. Thanks a lot.

Operator

Thank you. The next question is from the line of Akshen Thakkar from Fidelity. Please, go ahead.

Akshen Thakkar — Fidelity International — Analyst

Yeah. Hi. Congratulations to the team on a good performance given the environment. My question was related to margins. If you take the last two, three years sort of view, we’ve seen a lot of volatility in margins. Admittedly, the management has invested in the business, and that is reflected in the market share that you have delivered. Now, if you think about margins on the — I’m not saying next quarter or next year, but just generally over the next two- to three-year period, how are we broadly thinking about margins? Are we thinking about margins going back to where they were three, four years back? Are we thinking about average margins over the last seven, eight years? So, generally how you think about margins, will be a great help. That was question one.

Anil Rai Gupta — Chairman And Managing Director

Yeah. I think a very good question, I would say. And this is how we would also view given the fact that last three or four years were sort of up and down both in terms of demand, in terms of raw material. But going forward, if we continue to see the stability, we would want Havells core business margins to come back to normalized levels, which were there before COVID. So — and we are seeing that trajectory now in the last couple of quarters. But I think it’ll continue to remain here. And Lloyd, I’ve already said, that it’s a continuous journey. We do believe that at certain volume level, we should definitely make money. But it will take some time. It’s the investment time for Lloyd at this point of time.

Akshen Thakkar — Fidelity International — Analyst

Okay. And, sir, second question, again, slightly on a medium-term basis. How large do you see export as an opportunity from this business? And sort of I wanted your perspective both on Lloyd and ex-Lloyd. Do you see that being a material growth driver, or it’s something which anyways has been a focus, so it doesn’t more than yield maybe as much over the next three, four years?

Anil Rai Gupta — Chairman And Managing Director

So, I think in the next three or four years, we would see a lot of focus on building exports both. One from the core business of Havells, there are opportunities for building cables and wires business, lighting business. Switchgear already has been doing well and there’s opportunity there. For Lloyd also, with their manufacturing facility that we have, we definitely see more scope there. This whole China Plus One, look, in our industry, it’s not really a commodity, it takes time to build relationships for the channel. But definitely, we see a huge potential coming in the three years.

Akshen Thakkar — Fidelity International — Analyst

All right. Thank you, sir.

Anil Rai Gupta — Chairman And Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Indrajit Agarwal from CLSA. Please, go ahead.

Indrajit Agarwal — CLSA — Analyst

Hi. Good evening. Thank you for the opportunity. I have two questions. So, if you look at our AC capacity currently, we have about two million units of capacity versus India’s current consumption of about eight million. So, we are about 25% capacity of the consumption. So, how should we look at market share gain versus export optionality from the new unit?

Anil Rai Gupta — Chairman And Managing Director

I believe we take Indian capacity or Indian sales as about 10 million, so we have about 20% capacity. I think the future demand for air conditioners is continuing to grow in India. We do believe that even the small town and rural areas will demand ACs in the future. So, we definitely see a huge potential for growth in the air conditioners. And of course, exports from Sri City will be also [Indecipherable]

Indrajit Agarwal — CLSA — Analyst

Sure. Thank you. And in this two million unit capacity, how much integration do we have, backward-integration in the BOM currently, and how should we look at it going forward?

Anil Rai Gupta — Chairman And Managing Director

Except for compressors and motors, we have pretty much integrated everything in-house, including the plastic molding, heavy sheet metal, etc.

Indrajit Agarwal — CLSA — Analyst

Sure. Thank you very 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

Thank you for taking my question. Sir, my first question is what Achal has asked, continuing with that. In terms of ad spends, discounts, etc., there was a time you used to spend about 4.5% to 5% of sales on that. Now as you look at competition, those who are doing cables and wires wants to do electrical consumer durables, sir, everybody wants to do everything. Do we see a scenario that we may have to increase the spending of 2.5% to 3% just because competition across the board seems to be pretty aggressive?

Anil Rai Gupta — Chairman And Managing Director

So, 2.5%, 3% is overall Havells. So, we — if we look at consumer products, especially the products where there is direct consumer advertising required, there the percentages are higher. So, when you see 2.5%, it’s a mix of things. And we believe, yes, there’s the biggest spenders in the electrical industry, and there is a lot of rub-off effect of one product category to the other. So, I don’t see any reason that we should be seeing a huge increase in advertising spends. As far as incentives, promotions, and all are concerned, it’s not really a part of this thing. It’s part of — it’s not captured in this.

Pulkit Patni — Goldman Sachs — Analyst

Sure. Anil ji, second question is, we’ve got INR2,000 crores, more than INR2,000 crores of cash with us, no debt. Any portfolio gaps that we could think of filling, say, in the next two to three years which you feel could drive significant growth from here? Anything you can talk about? Again, nothing immediately, but over the three- to four-year period.

Anil Rai Gupta — Chairman And Managing Director

Yeah. This is a continuous process. Within organically, two things. One, there is a constant process of adding product categories. And we’ve seen that in the past. But also there — another fact is that these kind of organic expansions don’t require a whole lot of capital infusion. So, it’s a good problem to have. But the fact is this, we’re not — we don’t anticipate any major cash infusion into a new product category. But constant improvement, constant additional product categories are continuing there normally.

Pulkit Patni — Goldman Sachs — Analyst

Sure. Thank you so much.

Operator

Thank you. The next question is from the line of Rakesh Roy from Omkara Capital. Please, go ahead.

Rakesh Roy — Omkara Capital — Analyst

Hi, sir. Sir, my first question regarding, sir, your — our rural sales is very less. In FY ’23, how much is there and what is the strategy for next two, three years to increase the rural sales?

Anil Rai Gupta — Chairman And Managing Director

Can you please come closer to the mic? Can’t hear you.

Rakesh Roy — Omkara Capital — Analyst

Hello? Yeah.

Anil Rai Gupta — Chairman And Managing Director

Yeah.

Rakesh Roy — Omkara Capital — Analyst

Yeah. Sir, our rural sales is very less compared to other players. So, for FY ’23, how much is our rural sales and what is the strategy for next two, three years to increase our rural sales?

Anil Rai Gupta — Chairman And Managing Director

So, rural sales — I don’t know whom you’re comparing with, but in FMCG, yes, we have definitely a good portfolio from rural sales. In the electrical industry, we have seen that rural penetration is increasing over the last few years. Right now, about 5% to 6% of our consumer product sales come from rural sales. And going forward, the basic strategy is to continue to increase penetration and add more categories.

Rakesh Roy — Omkara Capital — Analyst

Okay. All right, sir. Sir, in the ECD business, maybe I missed, in the ECD business, how much is the fan contribution, sir, for full year?

Anil Rai Gupta — Chairman And Managing Director

[Speech Overlap] quarter-to-quarter, but it varies between 60% to 65%.

Rakesh Roy — Omkara Capital — Analyst

60% to 65%, sir?

Anil Rai Gupta — Chairman And Managing Director

Yeah.

Rakesh Roy — Omkara Capital — Analyst

Okay, sir. Sir, last question, sir. In the cable business, how much is from domestic side and how much is from industrial side, sir, for full year, sir?

Anil Rai Gupta — Chairman And Managing Director

Around 60% comes from the domestic segment.

Rakesh Roy — Omkara Capital — Analyst

Okay, sir. Okay. Thank you, sir.

Operator

Thank you. The next question we have from the line of Rahul Agarwal from InCred [Phonetic] Equity Group. Please, go ahead.

Rahul Agarwal — InCred Equities — Analyst

Yeah. Thanks. Sir, three quick questions. On Lloyd, in your opening remarks, you mentioned west and east is what Havells is working on in terms of improving market share. Just wanted to know overall regionally, around the four corners, are we weaker and stronger in some areas? That’s one. Obviously, I know that east was stronger for Lloyd. And in terms of peak manufacturing sales from Lloyd excluding the Sri City expansion, what would be like the peak revenue for Lloyd if we — excluding the outsourcing and the Sri City expansion?

Anil Rai Gupta — Chairman And Managing Director

So, yes, in every category, yes, there are strong areas and weak areas. South and north have been traditionally stronger for Lloyd. East and west have been traditionally weaker, and that’s where the focus has been. I’ve not understood your second question fully.

Rahul Agarwal — InCred Equities — Analyst

Sir, what I’m asking is based on our manufacturing capacity of Lloyd, excluding the new one million at Sri City, and — but including the washing machine and the outsourcing obviously is additional over and above that, what would be the peak revenue potential, because, I think, Rajesh ji mentioned INR3,000 crores comes from Sri City additionally. But excluding that, what is the peak revenue?

Anil Rai Gupta — Chairman And Managing Director

When you see capacity, INR2,500 crores to INR3,000 crores can come from Sri City. Same is the capacity for ACs at Ghiloth. As far as outsourcing is concerned, it is more opportunistic. We do not prefer to do any outsourcing for air conditioners, especially where we have manufacturing, because of the quality differentials which we have in our plants. So, we prefer not to have any outsourcing. So, that is the thing. And washing machines and refrigerator is an ongoing process of increasing sales. They are not constrained by capacity.

Rahul Agarwal — InCred Equities — Analyst

Right, sir. Secondly on fans, obviously, the channel was overstocked into Jan, Feb, but that could be more for 1- and 2-star ratings. Could you share some trends for premium and decorative fans? I understand April is weak, but what’s happening in that segment?

Anil Rai Gupta — Chairman And Managing Director

So, for the third quarter, premium fans sales were low. And going into the season, they are now coming back to normal levels. So, the inventory position of non-rating fans, especially in the month of January, February were high, so people were not really picking up the premium fans. But I think these — what we expected was with the season coming in, that will be the pickup in the channel. However, the season has been a little bit tepid both for March and April. Let’s see how it goes in the month of May and June.

Rahul Agarwal — InCred Equities — Analyst

Perfect. And, sir, lastly on South India, I can see Havells putting up cable plant there, AC plant has already come up. Is this a conscious decision to strengthen South India presence? And do you see more opportunities there? And related question is, Sri City is obviously seeing too many AC plants come up with very large capacities. I think Daikin has also put up, a lot of other foreign brands are doing it. Margin stability to come back ahead, is that going to be like a two-, three-year thing, or you think the next 12 months would answer that question?

Anil Rai Gupta — Chairman And Managing Director

So, I think on the personal side, in terms of expansion, when we were thinking of expanding further capacities in products where we needed to expand, we thought about diversification of region, because most of our plants have been in north, so south has been there. It has been a stronger market. It’s not necessarily to develop those markets. But as I said, for Lloyd, for cables and wires, it’s been a strong market for Havells, and that was also one of the reasons to put up facilities there. In terms of more capacity coming for air conditioners, that also is a reflection of the future demand scenario, which we do expect, because the penetration levels are still extremely low in India. And going forward, we do believe that there will be good growth coming in for air conditioners, So, I think that is something which the entire industry is looking at.

Rakesh Roy — Omkara Capital — Analyst

Sure. The question essentially was on the margins for AC industry. Will that…

Anil Rai Gupta — Chairman And Managing Director

It’s very difficult to say when the exact demand will come, whether that could mean oversupply or not. It has to — it’s difficult for me to comment on this margin profiling at this point of time.

Rahul Agarwal — InCred Equities — Analyst

Understand, sir. Thank you so much for answering my questions.

Anil Rai Gupta — Chairman And Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Amit Bhinde from Morgan Stanley. Please, go ahead.

Amit Bhinde — Morgan Stanley — Analyst

Hello, sir. I have two questions. First one is on Lloyd. So, can you approximately tell us how many units — approximately, you would not want to give out the exact numbers, would Lloyd be selling in AC, refrigerator, and washing machine right now? And in AC, how do you see the utilization levels panning out with the Sri City capacity being added? And as you said in the previous question that it is a crystal ball gazing as to how demand and penetration would shape up. So, what are the backup plans on exports side, or how would you look at improving the capacity utilization in case the domestic demand doesn’t support?

Anil Rai Gupta — Chairman And Managing Director

So, as you can say that, when we don’t give numbers for air conditioners, we can’t even give approximate numbers. So, we have a — we do say that we are amongst the top three players in the AC industry. On the capacity utilization, it is more dependent upon the demand. And obviously, there is — there are efforts going into build exports also. It takes time. The demand is going to be there. If the demand is very good, then obviously, we will have a higher capacity utilization. So, you were asking me the question of crystal ball gazing raising anyway. So, it’s very difficult to say exactly how much will be the sales.

Amit Bhinde — Morgan Stanley — Analyst

Right. Sir, but approximately like most of your sales were coming up from the Ghiloth facility, which was one million. So, approximately, would it be right to say the capacity utilization would be 70%, 80% over there, or 90%?

Anil Rai Gupta — Chairman And Managing Director

Yeah, you can say that.

Rajesh Kumar Gupta — Whole-Time Director (Finance) and Group CFO

That’s right.

Amit Bhinde — Morgan Stanley — Analyst

Yeah. Okay. Great. And other question that I had was on your O2O model that you had launched during the COVID period, that was focused on supporting the demand and supply in that given situation. So, how are things panning out on that model? Are we still continuing to focus on it?

Anil Rai Gupta — Chairman And Managing Director

It is a very, very small part of of the business, because post-COVID, most of the business online has come to the marketplaces. So, the own-brand store sales have been very low. If you remember at that point of time, the idea was to build availability for the consumer at very close proximity. That really is not a whole lot of requirement as of now. Going forward, how it pans out, it will continue to be there. We had developed a capability. But in terms of revenues, that’s still very low.

Amit Bhinde — Morgan Stanley — Analyst

Right. I get that. Yeah. That was helpful. Those are the questions. Thanks.

Anil Rai Gupta — Chairman And Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Amit Mahawar from UBS. Please, go ahead.

Amit Mahawar — UBS — Analyst

All right. Thank you. Sir, congratulations on a great set of numbers given the current challenges. I just have one question on cable and wire and switchgear segment. If you see last four, five years, the way they’ve basically grown on this segment is very steady. And I just want to understand if we are allocating any capacity creation in the next two, three years, and especially in wires and switches, and what is the current utilization level in both these segments, sir?

Anil Rai Gupta — Chairman And Managing Director

So, in cables and wires, it is — capacity utilization is at a very high level, and that’s why new facilities are coming up in Tumkur which will be operational in the next 12 months. Switchgears, we are constantly adding capacity over the last two or three years, so we don’t see any major capex in switchgears.

Amit Mahawar — UBS — Analyst

Okay. But overall, between the two segments, can I say roughly around INR100 crores to INR200 crores will grow in capacity creation, or it’s going to be much more that, sir?

Anil Rai Gupta — Chairman And Managing Director

For the Tumkur facility, it will be higher, about INR300 crores…

Rajesh Kumar Gupta — Whole-Time Director (Finance) and Group CFO

Part of INR600 crores.

Anil Rai Gupta — Chairman And Managing Director

…which is part of the INR600 crores capex for the [Speech Overlap]

Amit Mahawar — UBS — Analyst

Okay. And I’m sorry, for one more follow-up on this. And within cables and wires, is it more towards the branded wires, sir?

Anil Rai Gupta — Chairman And Managing Director

For both sides, because capacity…

Amit Mahawar — UBS — Analyst

Both sides.

Anil Rai Gupta — Chairman And Managing Director

…is high on both for underground cables and wires.

Amit Mahawar — UBS — Analyst

Okay. Thank you. Thank you very much, and good luck, sir.

Anil Rai Gupta — Chairman And Managing Director

Thank you.

Operator

Thank you. As there are no further question, I would now like to hand over the conference over to the management for their closing comments.

Anil Rai Gupta — Chairman And Managing Director

No, thank you very much. Thank you for joining the call. Thank you.

Operator

[Operator Closing Remarks]