IFB Industries Limited (IFBIND) Q3 FY23 Earnings Concall Transcript

IFB Industries Limited (NSE:IFBIND) Q3 FY23 Earnings Concall dated Feb. 09, 2023.

Corporate Participants:

Prabir Chatterjee — Director and CFO

Rajshankar Ray — MD and CEO of Home Appliance

Arup Das — Head of Marketing, Engineering Division

Anand Reddy — CEO of Motor Division

Analysts:

Prasheel Gandhi — Nirmal Bang Equities — Analyst

Dhananjai Bagrodia — ASK Investment — Analyst

Abhinav Jain — SG India — Analyst

Manoj Gori — Equirus Securities — Analyst

Bhargav B. — Kotak Mutual Fund — Analyst

Chirag Muchhala — Centrum Broking — Analyst

Vineet Prasad — Investec Capital — Analyst

Sudarshan Mall — Dhunseri Investments — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the IFB Industries Limited Q3 FY ’23 Conference Call hosted by Nirmal Bang Institutional Equities. As a reminder, all participant lines will be in the listen-only mode and there’ll be opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Prasheel Gandhi from Nirmal Bang Equities. Thank you and over to you.

Prasheel Gandhi — Nirmal Bang Equities — Analyst

Thank you, Mike, and good afternoon, everyone. Nirmal Bang Institutional Equities welcomes you all to 3Q FY ’23 Earnings Conference Call for IFB Industries. On the onset of the call, I’d like to thank the management for giving us the opportunity to host the call. From the management today we have Mr. Prabir Chatterjee, Director and CFO; Mr. Rajshankar Ray, MD and CEO of Home Appliance; Mr. Arup Das, Head of Marketing, Engineering Division and Mr. Anand Reddy, CEO of Motor Division.

Now, I’d like to hand over the call to management for opening remarks, post which we can take questions from the participants. Thank you and over to you.

Prabir Chatterjee — Director and CFO

Thank you. Prasheel. Good afternoon, everyone. I welcome you all to IFB Industries investors call for the third quarter FY ’23. Joining me today are Mr. Rajshankar Ray, MD and CEO of Home Appliance Division, Mr. Arup Das, Head of Marketing, Engineering Division and Mr. Anand Reddy, CEO of Motor Division.

Now coming to the results. Growth during this quarter was 4.5%. YTD growth for the period ending December was 36.9%. Growth during the quarter 3 was flat mainly due to lower-than-expected revenue in the appliance division, mainly during November and December 2022. The company has reported a total income of INR981 crores compared to INR938 crores during the same quarter last year. During the third quarter, EBITDA was INR33 crores which is 6% higher compared to the third quarter last year. As a result of lower commodity price, material price reduced by 2%, material cost, reduction of material cost and marginal hike in revenue resulted in higher EBITDA during the. YTD revenue up to third quarter December was INR3132 crores compared to INR2468 crores for the same period last year. YTD growth in revenue compared to last year was 26.9%. EBITDA margin during the period was significantly higher at INR145 crore compared to INR75 crore for the same period last year. YTD growth in EBITDA was 93%. Major reason for a higher growth in EBITDA was higher revenue.

With this. I will request you to start the question-and-answer session, please.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] We have the first question from the line of Dhananjai Bagrodia from ASK Investment. Please go ahead.

Dhananjai Bagrodia — ASK Investment — Analyst

Hi, sir. I wanted to ask you about home appliances business. What are we seeing, are we seeing a general slowdown across the board or is the company losing maybe market-share, what is the situation for home appliances. Could you get my question?

Rajshankar Ray — MD and CEO of Home Appliance

Yes. I got your question. Can you hear me?

Dhananjai Bagrodia — ASK Investment — Analyst

Yeah, I can hear you.

Rajshankar Ray — MD and CEO of Home Appliance

So if you the market slowdown in November and December, this was across the board affecting all companies. So the company has not lost any market share but November and December unfortunately were two very bad months as far as the industry is concerned.

Dhananjai Bagrodia — ASK Investment — Analyst

So was that was for a segment or for all.

Rajshankar Ray — MD and CEO of Home Appliance

It was across-the-board. The only thing that happened in the month of December, we had some very high we believe air-conditioners by companies to the channels. But this is not customer uptake. This was basically building up a stock. But as far as washers, microwave, dishwashers etc. were concerned in general the customer movement in these two months was very good.

Dhananjai Bagrodia — ASK Investment — Analyst

And was it across or was it like — where are we seeing such a big impact,

Rajshankar Ray — MD and CEO of Home Appliance

So, we’ve seen the impact across. There wasn’t any specific urban or rural bias to this. It was a general general slowdown across. Typically what happens is that post-Diwali in the month of November, there is generally a lull. And there is some uptick that starts from the month of December, but this time it was an extended lull. As far as we are concerned, our focus remains on expanding our network and getting more out of our network. So, IFB per se, even in a market like this has enough levers to go which we agree to fall our levers properly but the fact is, it was across the board demand slowdown in November. There is no share loss, there is no market share loss.

Dhananjai Bagrodia — ASK Investment — Analyst

Sir, just to have an idea, what would our approximate share be for segment market share.

Rajshankar Ray — MD and CEO of Home Appliance

So, can we give you those figures separately, because what we do is that we estimate market share based on data from suppliers. What we understand that case. So there is one index of GSK data that we use and internal estimate we make, because the GSK doesn’t cover all areas. So as far as front loaders are concerned, our market share estimated roughly in the range of 34, 35 percent considering all the data points that we have. And there has been an increase in that from the last year. And there is one segment in the front loader, which is the 9 and 10 kg segments in which we did not have models present where IFB share was effectively zero. So over the last quarter, we had given the introduction of the 9 and 10 kg into the market and we expect the overall market share gain from that inflection. As far as top loaders are concerned, our market share is in the range of around 8% to 9% basically.

Dhananjai Bagrodia — ASK Investment — Analyst

Sir, [Indecipherable]

Rajshankar Ray — MD and CEO of Home Appliance

Sorry, could you just repeat the question.

Dhananjai Bagrodia — ASK Investment — Analyst

Market share of 34%, how much would it be over a 3-year period.

Rajshankar Ray — MD and CEO of Home Appliance

Our market-share over a 3-year period. I think has reduced by roughly around 4% to 5%. And that reduction primarily came around two years back because the last 3-year period market share has been more or less constant. But if you take a 3-year period then the market share reduction in front load would be at 4% to 5% reduction. And the top loaders, would be an increase by about a percent and a half.

Dhananjai Bagrodia — ASK Investment — Analyst

Okay. And what are the other findings.

Rajshankar Ray — MD and CEO of Home Appliance

So if you look at microwaves, the IFB share has been constant. And it is about 22% to 23%. And the position sort of rickets [Phonetic] between LG, Samsung and IFB in terms of, IFB comes in at number one. If you look at dishwashers, our market share is about 35, 36 percent. In air-conditioning, our market share is still very low. It is in range of around 2% to 2.5%.

Dhananjai Bagrodia — ASK Investment — Analyst

In air-conditioner now more and more competition coming in, what would be our strategy now to grow the segment. How do we look to compete.

Rajshankar Ray — MD and CEO of Home Appliance

What we have done is that, if you look at the introduction of the manufacturing revenue that we have in 2020 and the 2 years of the pandemic and the associated problems with that, we are actually quite unhappy that the overall conditioning business and we’ve also resorted that we’ve made significant PBT level losses after the investment in this segment. Now, there were two major agendas to profitability and also to revenues on the segment. One was the material cost. And that exercise started about a year back and starting this channel, the material cost reduction program is almost complete. So the effects of that will start showing from this quarter onwards. So this was the reason number one. The second was that in terms of placement of our products on all the channels where IFBs were in the area where we need to penetrate more through our distribution network, et cetera, so all the learnings that we’ve acquired over the last two-three quarters where we didn’t make much revenue. From this quarter onwards in terms of the placement strategy the strategy around how to handle the channel mix sort of key structure or the commercial structure with the channels, all that has been sorted out and therefore good volumes on that segment from this quarter onwards. Currently, these are two important elements for IFB on this segment. Does that answer your question, please.

Dhananjai Bagrodia — ASK Investment — Analyst

Yeah. I just wondering, to follow up on AC part. Like, how are we planning to do that, have we – locate more in terms of going online or really limited chance also. So how these being planned.

Rajshankar Ray — MD and CEO of Home Appliance

Yes, the fight for the shelf space is a real fight. But what we have done is that we have stayed at, let’s say, premium to a slightly higher than position consistently and we haven’t lowered that position for the last three years. And in the areas where we have mid sales taken countershare, the product. feedback has been very good. The channel retentions have been healthy. Now based on that experience, these were the expansion of the placement and the shelf-space in the large amount is taking place from this quarter onwards, So are we going to be present everywhere? Definitely not. That will take more time, because our price position is also more towards the higher end of the price range, basically. And we believe that is right because of the performance and the picture that we have. But in terms of getting what we want to ensure that our factories are fully utilize that volume we are quite hopeful that we will start delivering from this quarter onwards based on all the work that has been done on the placement side.

Dhananjai Bagrodia — ASK Investment — Analyst

Okay. so would be any target, would we look to like focusing on the mass segment by sizes in reaching our strategy.

Rajshankar Ray — MD and CEO of Home Appliance

Sorry, could you just repeat the question.

Dhananjai Bagrodia — ASK Investment — Analyst

You mentioned that are [Indecipherable] on the relatively higher side. Would we look to like really focus more on mass segment now.

Rajshankar Ray — MD and CEO of Home Appliance

No, right now we are not looking at any reduction in prices or a change in the model per se. The pricing that we have versus the features and the value there is a settled approach in the market that is not building. So at least for this quarter and the next quarter we will stay focused on what we have and at the end of maybe the first quarter of the next fiscal year, then you will look under future development too.

Dhananjai Bagrodia — ASK Investment — Analyst

Thank you.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Abhinav Jain from SG India. Please go ahead.

Abhinav Jain — SG India — Analyst

Thank you so much, Sir. I have couple of questions on the appliances business. One is, if you could just help us understand the gross margin across product categories. So you have front loader, top loader as one. You have dishwashers and you have ACs as a separate category. What sort of gross margin is the company realizing across and a broad understanding would be helpful. And how much the fixed cost expense has increased because of AC plant coming in. It is now our full credit division versus earlier it was purely a trading strategy in terms of fully built unit being imported from China and being sold.

Rajshankar Ray — MD and CEO of Home Appliance

Mr. Chatterjee, would you like to answer that please.

Prabir Chatterjee — Director and CFO

The first one is that we normally talk about the product price margins, number 1. And because AC some fixed cost has gone up but that is more towards AC plant and AC is being able to absorb.

Abhinav Jain — SG India — Analyst

Yeah, sure, So, okay, what I wanted to understand was say, for example. if Appliances division as a whole was operating at 45% gross margin. If AC, what we understand is AC gross margin was substantially lesser. So, is that right? I mean, we do not know the exact numbers, but just I want to understand the variation.

Prabir Chatterjee — Director and CFO

AC margins are lower than our other products.

Abhinav Jain — SG India — Analyst

And by what quantum, sir, is it 10%, 5% 15%.

Prabir Chatterjee — Director and CFO

Do not please ask me about the quantum.. But I am saying it is the lower compared to other products that we manufacture, it is lower but it has improved over the past. Because we have done lot of localization and other things so gradually margins are going up. But even then it is lower than front loading and other products.

Abhinav Jain — SG India — Analyst

And sir before the plant came up, there was substantial INR300 crores of AC revenues that the company used to do or had got into a scale. Was the margin comparable back at that time or margin actually is lower now when you have your own plant.

Prabir Chatterjee — Director and CFO

Yeah. I will say it is lower now, because at that point of time, we are losing even more, number one, and the modules are limited because when you are buying it from OEM source, we never had so much of flexibility, number one. And the fluctuation in the, while we are reporting the price increase, we had no control of those things.

Abhinav Jain — SG India — Analyst

Yeah, no, I understand that. All I’m asking is, say, over the 4-year rolling average basis your gross margins pre 2020 was, is it true that it was higher than what what you have been able to deliver say in FY ’12 or FY ’13.

Prabir Chatterjee — Director and CFO

No. The current position is better.

Abhinav Jain — SG India — Analyst

Okay. And fixed cost expenses because of the plant, the whole manufacturing overhead, how much will that be on yearly basis because I see a number being called out of PBT loss because of the AC business in your investor report. So just wanted to understand what the fixed cost annual addition that has come because of AC plant.

Prabir Chatterjee — Director and CFO

The fixed cost, we see there is some increase in the manning and other related expenditure but which is related to this thing and the recovery of which has to come from AC only because otherwise if you see the results, manning was only quarter-to-quarter. Even last year if you compare, it was 9% increase, which is mainly because of addition of manpower and increment given to the employees, number 1. And in operating expense there is not much, there are quarter-to-quarter. If you compare there is a reduction. And operating expense, like I said, around 80% to 85% is variable in nature. And the fixed cost is really building on there basically. So, I don’t think we have impacted much there. We have reduced some fixed cost. There are further scope for reducing it. But of course AC related fixed cost if it is there it has to be recovered.

Abhinav Jain — SG India — Analyst

Probably I keep asking this question every quarter is and given the material cost reduction program is mostly complete work on the bottom and pricing is something that you would like to keep at the premium. So what sort of steady state Appliances division margin that you would want to work with them, which is achievable in the short-term, both at the gross margin level or maybe at an EBITDA level, because we have seen quite a lot of fluctuation around gross margin and EBITDA margin in the appliances business which were for genuine reasons of raw material supply shortage and high commodity price inflation. But I’m assuming, a big assumption is that things are settling down now. So, so what is achievable in the near-term in the next two-three quarters. And what is the steady state that you would be getting for that.

Rajshankar Ray — MD and CEO of Home Appliance

Okay, Rajshankar here. See, if you look at what we have also stated in many investor calls, our internal target is to be able to deliver double-digit EBITDA margin. Now the areas where we have not been able to deliver as per our own internal targets, one has been the material cost side which was in a lot of trouble since the commodity pricing moved up from Jan ’21 onwards and that exercise, we have now stabilized and it will, a lot of the pressure will come from this quarter. And the second has been that there is a certain network that we have, there is an extraction that we should get out of it. The progress on that is not in line with our own expectations. So, if you see up the period of the second quarter or up to October end, we did have a healthy growth rate but even we believe. I mean, internally even that what growth we should have can be much more than what we are delivering. So we can be able to do on the revenue side, what we are supposed to be doing which is to be able to get extraction out for a lot of work has been done internally to be able to ensure sales extraction. And the combined effect of the material cost work, which is 99% complete. Both put together, we wouldn’t want to give a specific forecast on this but it can be very close to a double-digit margin is what we have also said in previous investor calls. Does that answer your question.

Abhinav Jain — SG India — Analyst

Yeah, it does. Sir, one clarification I need. And all this pertains to AC per se. Rest of the divisions or product categories, there is no margin or volume challenge, so to say. Am I fair in saying that?

Rajshankar Ray — MD and CEO of Home Appliance

Yes. So if you see, our financial results, the fact that we are losing money on the AC segment has definitely affected the overall P&L. And what we internally have targeted is that in quarter 4 and quarter 1, we did a specific improvement on the AC segment. When the AC improves, it has an automatic positive effect to a significant degree to the overall business. So you’re right.

Abhinav Jain — SG India — Analyst

And there would be a very-very high salience of Q4 and Q1, given it’s a summer product any which way.

Rajshankar Ray — MD and CEO of Home Appliance

Yes, Q4 and Q1 for the AC segment are the two main quarters. You’re right.

Abhinav Jain — SG India — Analyst

And. So, what we also said earlier was the OEM part will also help you increase the utilization of the AC plant. So by now, you will have significant visibility on the OEM volumes. Is it per expectation of what guided.

Rajshankar Ray — MD and CEO of Home Appliance

Yes, yes. Whatever we have been given in terms of orders for Q4 and Q1 what we need to ensure that the plant runs to capacity, it is in line with that. You are right.

Abhinav Jain — SG India — Analyst

And obviously, a part of the bond reduction, the pricing — the improvement in terms of lower cost must have been passed to the OEM customers.

Rajshankar Ray — MD and CEO of Home Appliance

So with OEM customers, there is an indexed pricing mechanism which is based on commodity fluctuations every quarter the pricing also adjust every quarter. So we have a quarterly understanding.

Abhinav Jain — SG India — Analyst

Okay, no sir, so because all I’m assuming is I understand the indexation parts for key component. But you would have been engaging or at least broadly in terms of pricing with the OEM customers. And given that you’ve been able to achieve the material cost-reduction program. So does that sort of improve your envisage margins from the OEM segment at all or it stays the same, whereas your pricing to them was always keeping in mind that you’ll be able to achieve the targeted material cost reduction.

Rajshankar Ray — MD and CEO of Home Appliance

So yes, you are right, to the extent that the material cost reduction program versus the price expectation from OEMs will help the profitability on the OEM segment. But the larger part of the profitability on the AC segment is the brands sales and the cost structure on the brand sale side. So yes, there will be an improvement on the OEM side, but the P&L per se improves if we sell to our target and the material cost exercise from this quarter onwards will start showing the benefit.

Abhinav Jain — SG India — Analyst

Got it. Thank you so much, sir.

Operator

Thank you. We have the next question from the line of Manoj Gori from Equirus Securities. Please go ahead.

Manoj Gori — Equirus Securities — Analyst

Yeah, thanks for the opportunity. My question here is if we at the employee cost on sequential basis has increased by roughly around INR9 crores to INR10 crores. So, Mr. Chatterjee just highlighted there were increments but normally what I assume is or probably what I understand is that normally the increments happen during Q1. So, why time time during Q3, any reasons specifically.

Prabir Chatterjee — Director and CFO

No, the appraisal and other process took little time. That is why it was given and delayed but it was effective April only. There is no other reason but normally if you see that even in a normal increment the effect which comes late first quarter or in second quarter.

Manoj Gori — Equirus Securities — Analyst

So, this year in 3Q.

Prabir Chatterjee — Director and CFO

Yeah.

Manoj Gori — Equirus Securities — Analyst

Okay and sir, when we say about incremental employee or headcount that we have added during the quarter. So those headcount probably if we look at the factory has been running for AC. So probably those new employee count would be for which category. Can you throw some light over there.

Prabir Chatterjee — Director and CFO

This is not so much in factory, maybe in marketing and other areas to increase the network in other areas.

Manoj Gori — Equirus Securities — Analyst

So Rajshankar-ji, this question is for you. So probably when we see, like you just highlighted, like we have not been able to get the desired level of extraction from the channel. And still we have been deploying new headcounts and obviously, and in fact one complement that I would like to give is if you look at the product quality and the product aesthetics, IFB definitely have an edge over competitors. So whether we talk about the industry giants as well, I do believe the products are relatively better. So what are the major challenges that we are finding on the extraction side because this thing is something we have been aspiring for long now on the extraction part.

Rajshankar Ray — MD and CEO of Home Appliance

Yes, so you are 100% right and we are also internally quite unhappy with this progress per se on this and if you ask me, there are primary channel is that there is a large part of the network which is spread through distribution, which is the indirect retail network. And this is a network, but we’re sort of we’re not presenting at all. And over the last two-three years, there has been a lot of focus in getting the network right. But in terms of having the right set of distributors, ensuring that the KPIs in the system probably settle down well and everyone knows what they have to do which is either the distributor or the IFB employee if we have the product placements properly done, etc. it is taking out some timing to really do this. And we also not very happy with the pace. But in terms of the extraction increase from the network that we have, the largest area of improving is through the distribution network only. Now to some extent the distribution network is dependent on products that are more marked [Phonetic] in nature, so let’s say a top loader or any conditioners. Now the air-conditioner story is still picking up some time. I believe that from this quarter onwards, the distribution network will bring AC that should have been present two years back. The top loaders, etc. range is still positioned high. So even though large parts of the distribution network are you able to sell it, but 100% of the network is unable to sell it because the price points are higher. So, to some extent it is the product basket that we have but more it is to do with how we are running the distribution channel effectively, and that is the work that we have to continue basically. So if our progress is slow, it is slow because on that area we are behind our own internal targets. Does that answer your question?

Manoj Gori — Equirus Securities — Analyst

Yes, absolutely. Sir, one more observation has been even the washer, when we look at. So even in the West or in the North when we visit the stores or in any of the large format stores like Chroma or Vijay Sales or Reliance Digital, we are able to see your front-load washing machines. What is missing is a top-load fully automatic washing machines are not even in display.

Rajshankar Ray — MD and CEO of Home Appliance

So if we look at probably when comes to pricing, we are very near to the largest players in the industry. But still we are not able to see that washing machine and the feedback that we’re receiving especially in the West market is that IFB normally should be preferred as the front-load washing machine, not for the top-load one. So what actually like this negative perception upon the channel or probably what’s happening over there, because now we have done our in-house manufacturing since many years now, it’s more than four-five years if I am not wrong for top-load washing machine, but still we are not able to see even in the large-format stores. So your feedback is right. The placement of the top loaders in the larger store is below par. And in fact, from this quarter onwards in terms of the expansion of the placement of the top loaders in let’s say Reliance or Croma we have taken that as a primary target in terms of the large key accounts, how to increase placements of the products that we have. So that is, again, that will be completed in this quarter and the next quarter, but your feedback is absolutely right. So, the top loader we did not placement from side. It is a good product and the expansion in the placement itself will give significant rise in volumes.

Manoj Gori — Equirus Securities — Analyst

Right. Because see I personally use it. I am very comfortable with the product quality. The product, i think it is a low hanging fruit for us because it definitely goes well with our front-load washing machine.

Rajshankar Ray — MD and CEO of Home Appliance

Yes, you’re absolutely right, it is a very low-hanging fruit. And we can get much more out of revenues quickly on the channel. The increase in the placement is something that we have taken as a specific task for this quarter especially the channels like Reliance, Croma, etc..

Manoj Gori — Equirus Securities — Analyst

Right. Sir, one more question on the gross margins, you have answered a lot, but when I look at the gross margins in last quarter, if I’m not wrong, you highlighted like we have taken some pricing actions and also then if you look at the commodity prices have also hold off significantly. But when I look at the sequential gross margin improvement, if you look at the gross margin, probably, those have declined on sequential basis.

Rajshankar Ray — MD and CEO of Home Appliance

I think the effect of reduction in the commodity prices or the material cost action that we completed comes into full effect once the pipeline inventory clears of. So this impact of the material cost on the gross margin we will start seeing from this quarter onwards

Manoj Gori — Equirus Securities — Analyst

From Q4 onwards?

Rajshankar Ray — MD and CEO of Home Appliance

Yeah, so in for example–

Prabir Chatterjee — Director and CFO

Q3 we have got in appliance around 2% reduction in that deal.

Manoj Gori — Equirus Securities — Analyst

Okay, okay, understood. And sir, last question on the room AC side. So obviously, when you look at the current scenario, so the intensified competition, like most of the brands have been growing very aggressive in pricing. So I would just like to understand your strategy, obviously you gave a brief description about the product portfolio, but on the channel side, when we look at probably there would be something which even channel would be positive on because of the higher schemes or margins that they would be able to generate on the MOPs. So what sort of margins we would be offering to channel as compared to other players in the industry.

Rajshankar Ray — MD and CEO of Home Appliance

So this query is tremendously across India and you might find that the channel AC in many places on a margin of let’s say 500 to 1500 because of the excessive presence of some of the mass plans there is a lot of discounting that happens. Now what we have understood based on our previous seasons experience, we sort of pursuing this idea of proper pricing based on our conviction was about the product. Then the additional retention because of the lesser discounting that people need in order to get anywhere between 1000 for 2000 rupees. So as I was saying that as far as the IFB retentions are concerned, its payments in the channel has been good and that is also helping us to increase the channel sales from this quarter onwards. Right. And we have a lot of service network in place as compared to the other players in the industry Yes. We are very wide and a very well present service equal to the best in the industry actually.

Prabir Chatterjee — Director and CFO

And it is also expanded.

Manoj Gori — Equirus Securities — Analyst

Yeah, yeah. And sir, lastly if you look at temperatures have definitely been picking up over the last few days. And what we hear is South has been witnessing some demand uptick. Are we seeing any green shoots of probably any revival in demand whether in rural or urban markets or anything of that sort.

Rajshankar Ray — MD and CEO of Home Appliance

So, January was better than November and December definitely. February seems to be similar to January, but we have to wait a little bit. Excessive downward dip of November and December has definitely reversed in January.

Prabir Chatterjee — Director and CFO

But we are witnessing on Y-o-Y basis at least, we are seeing some growth in home appliances.

Rajshankar Ray — MD and CEO of Home Appliance

Yes, Y-o-Y growth in October was much higher actually November —

Prabir Chatterjee — Director and CFO

YTD growth is around 26%.

Manoj Gori — Equirus Securities — Analyst

Right, but again, so probably if you look at the majority of the growth has come from the Q1 because obviously it was based was the COVID impacted period. But when we look at the Q2, it was 10% growth and Q3 was roughly around flattish on Y-o-Y basis. So I’m just asking like whether in Q4 at least so far we have been seeing that growth momentum.

Rajshankar Ray — MD and CEO of Home Appliance

So if see we haven’t seen it yet, but based on what is happening in the market in January and February at the end-of-the quarter, yes, we see it.

Manoj Gori — Equirus Securities — Analyst

Yes, so that was very helpful. Thanks and wish you all the best.

Operator

Thank you. We have the next question from the line of Bhargav B. from Kotak Mutual Fund. Please go ahead.

Bhargav B. — Kotak Mutual Fund — Analyst

Yeah, good afternoon team, and thank you for the opportunity. Sir, in the press release, we ready that we are sort of upgrading our IFB points in very aggressive pace 30 stores in ’23, 150 stores in FY ’24. So what is the rationale for doing this. Is it one sort of a branch strengthening exercise that we are sort of trying to emulate LG, Samsung also. Sort of spend a lot on the EBOs and that’s sort of brand-building strategy to push premium products.

Rajshankar Ray — MD and CEO of Home Appliance

Our investments on IFB point has been consistent over many years now, because we believe that it is good for the brand and also it is good for revenue. What we have put in the newsletter is that there is a new design that we piloted which has enhanced the customer experience. So now the earlier design of the IFB stores that we have we are going to change them to the new design and that is the roadmap. So we will be doing 30 odd stores in this fiscal year. And then a bulk of the stores in the next fiscal year. So I would say our spend on the IFB point has remained consistent, not just in terms of investments in building up the store but also in the marketing and the acquisition that IFB does. It’s a very important channel for IFB.

Bhargav B. — Kotak Mutual Fund — Analyst

And how profitable is this on the channel?

Prabir Chatterjee — Director and CFO

This is a profitable investment. This is profitable and IFB point, on a yearly basis, we have at least INR400 crores of revenue and margins are profitable.

Bhargav B. — Kotak Mutual Fund — Analyst

What is your revenue from IFB point. I missed the revenue numbers, sir.

Prabir Chatterjee — Director and CFO

INR400 crores plus.

Bhargav B. — Kotak Mutual Fund — Analyst

And profitability, is it similar to the company average or lower than the company average.

Prabir Chatterjee — Director and CFO

Good, I will not say, it is good actually. We are making money.

Bhargav B. — Kotak Mutual Fund — Analyst

Okay, and my last question is given that our positioning in AC is on the premium side. But if you look at the Indian mindset, typically for a Indian brand, it would sort of compare that on pricing. If it is at a premium, they would go for an MNC brand. So essentially channel incentive will play a significant role in order to push the product. So is it fair to say that our channel incentives would one of the highest in the industry if we have to succeed in premium ACs.

Rajshankar Ray — MD and CEO of Home Appliance

Actually, no, because one is the point on the incentives and the other is the point that I need early retentions. So you can give a lot of incentives. But if it gets discounted in the market at the end-of-the day, the channel is still left to something very small. So, if you look at incentives per se then we are in line with industry. But if you look at the retention, ours would be healthier than others. So it’s not that our strategy is to offer any additional money to be able to grow this business.

Bhargav B. — Kotak Mutual Fund — Analyst

Okay, so will we be spending on ad spends, meaning how do we plan to attack the customer.

Rajshankar Ray — MD and CEO of Home Appliance

Yeah, so for, let’s say the period March onwards in terms of the campaign required to create customer demand, yes, we will be investing this year in that. All those details have been worked out. In the period, let’s say, March to June, this year we will be investing to improve demand.

Bhargav B. — Kotak Mutual Fund — Analyst

Okay, okay, sir, all the best and thank you very much.

Operator

Thank you. We have the next question from the line of Chirag Muchhala from Centrum Broking. Please go ahead.

Chirag Muchhala — Centrum Broking — Analyst

Thank you sir. So the question is actually on IFB refrigeration. So wanted to understand which all products are we planning under this company and what is the rationale behind not having this business in IFB Industries itself rather than having another group company.

Rajshankar Ray — MD and CEO of Home Appliance

Mr. Chatterjee, would you like to answer that.

Prabir Chatterjee — Director and CFO

So it’s just a separate company, we have only participated at the equity in that company. As of now, we have planned INR97 crores of investment which should take our share to 44.4%. As of now, we have done around 37.4%. We have paid INR69 crores.

Chirag Muchhala — Centrum Broking — Analyst

Okay, so 37% with grow to 44% you are saying.

Prabir Chatterjee — Director and CFO

44.44%. When we pay the entire amount to that group.

Chirag Muchhala — Centrum Broking — Analyst

Then what all products are planned on that, so. I mean, residential refrigerator or commercial refrigeration, if you can please elaborate.

Rajshankar Ray — MD and CEO of Home Appliance

So. It’s an independent company making its own product brand but it will cover the entire spectrum of refrigeration in the mass segment, mass and mid premium segment when it launches. So I think by the end of this quarter, those details will be availanle as well. Right now they are in the final stages of putting together the product plans pricing plan, etc.

Chirag Muchhala — Centrum Broking — Analyst

The Direct Cool and Frost Free refrigerators which are basically residential refrigerators, that is what you are adhering to, right?

Rajshankar Ray — MD and CEO of Home Appliance

Yes.

Chirag Muchhala — Centrum Broking — Analyst

So sir, just if you can elaborate, IFB Industries there has been a company building with home appliances, right from washing machine, AC, microwave oven, dishwasher. Then why not refrigerator in the same company because future growth or profitability prospects will not flow through 100% in IFB Industries. So from that point-of-view I was asking.

Rajshankar Ray — MD and CEO of Home Appliance

Mr Chatterjee, would you like to answer that.

Prabir Chatterjee — Director and CFO

You answer this.

Rajshankar Ray — MD and CEO of Home Appliance

So if I were to answer you, it will be answering on behalf of IFB Refrigeration Limited per se and this might not be the right answer. So the advantage of having a focused independent company on a segment that is a large and big, are the principles behind this the company has been created. So, maybe we could take this question offline. And then you could discuss it more.

Chirag Muchhala — Centrum Broking — Analyst

Sure, okay. Moving to — Yes, sir, it is my request. Moving to AC, so for this upcoming summer season how many units have we contracted thus far with which all client. Is it possible to share.

Rajshankar Ray — MD and CEO of Home Appliance

The Indians [Phonetic] contract per se but they give indications or sign-offs on overall season volume. And then there are lifting plans that will come month wise and week wise et-cetera. But in terms of the capacity utilization of the factory, which is at roughly about 45,000 odd per month. We have enough to cover the factory utilizations. So from that point of view, the factory will be fully utilized.

Chirag Muchhala — Centrum Broking — Analyst

Okay, So essentially what we believe is FY ’24 will see roughly around 5 lakh volumes in AC, 3 lakh as you have mentioned that presentation from brand IFB and 2 lakh possible through EMC. Is that the right understanding.

Rajshankar Ray — MD and CEO of Home Appliance

Yes, so that has been our intention right from 2 years ago and we couldn’t do it. But the combination of the action that we’re taking on our own brand sales and indications from volume based on the value price equation, whatever, which is now much more settled than it was, let’s say, a year back. And the fact that our material cost is up. So now we believe that figure that we want to deliver, we are now in a position to deliver going forward.

Chirag Muchhala — Centrum Broking — Analyst

Okay. Assuming you deliver that volume which is probably on-target plans, will AC division [Indecipherable] operating margin in FY ’24 assuming that volume comes.

Rajshankar Ray — MD and CEO of Home Appliance

I do not want to comment specifically on the results for AC division but at those sort of revenue levels and the common fixed costs, let’s say, in sales, etc. the company becomes a very healthy margin situation. Because the overhead distribution across the volumes will be much, much better than what it is today.

Chirag Muchhala — Centrum Broking — Analyst

Okay, got it, thanks.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Dhananjai Bagrodia from ASK Investment. Please go ahead.

Dhananjai Bagrodia — ASK Investment — Analyst

Sir, thank you, again. Maybe I missed it but how is the demand shaping up now for all our segments considering festive season is done for most of them, which you mentioned, and how will the remaining segment do in terms of the industry demand.

Rajshankar Ray — MD and CEO of Home Appliance

So, the industry demand or the customer demand for air-conditioning actually starts moving from March onwards. So right now, which is mostly be from companies to the channel and stocking up. The customer movement per se has not started that yet for the season. As far as the other products are concerned like let’s say, washing machines microwaves, etc. the period now is better than what it was in November and December, definitely. But we still have to wait-and-see. It is definitely not at the level of October which was the season, but that is normally the trend. But it is better than the November-December situation.

Dhananjai Bagrodia — ASK Investment — Analyst

And how would it be, let’s say, the same time, let’s say, pre-COVID this month, Jan Feb implementing higher or still on level.

Rajshankar Ray — MD and CEO of Home Appliance

Right now it is similar.

Dhananjai Bagrodia — ASK Investment — Analyst

Okay, we don’t see much growth as such. Thank you.

Operator

Thank you. We have the next question from the line of Vineet Prasad from Investec Capital. Please go ahead.

Vineet Prasad — Investec Capital — Analyst

Good afternoon, sir and thanks for the opportunity. I just wanted to get a sense on how competition is doing, particularly the top 2, top 3 guys. Does aggression still continue from them.

Rajshankar Ray — MD and CEO of Home Appliance

Aggression is similar to what it was. So it’s not that somebody has become aggressive. If you look at players like LG, Samsung, they have always been aggressive. Samsung specifically over the last two years has been more aggressive than before which is also what we shared in the previous investor conference. But it could be similar. There is nothing special that we’ve gotten from these top players.

Vineet Prasad — Investec Capital — Analyst

Understood. Sir, why. I was asking this is what we understand is Samsung has increased prices after billing it for so long. And has that helped companies like us and others to also take up price increases along.

Rajshankar Ray — MD and CEO of Home Appliance

It is a good question. We haven’t seen the impact of the so-called price increase as yet. We’ll have to wait and see. And as of now, the price conditions in Samsung is similar to what is was before. We’ll have go on that.

Vineet Prasad — Investec Capital — Analyst

Okay, so the question is under refrigerator business. So why this tie-up or taking the business into the other subsidiary. Why not do it in a standalone entity, given that you have already done trials and testing in the past, if I’m not wrong, sometime in 2016 and ’17, ’18. We had we had done a trial launch as well that time. What is the rationale for this and If I may ask who holds the remaining 55%, 56% stake in IFB Refrigeration business.

Rajshankar Ray — MD and CEO of Home Appliance

Mr. Chatterjee, would you like to answer the second part please.

Prabir Chatterjee — Director and CFO

Can you just repeat the question.

Vineet Prasad — Investec Capital — Analyst

Sir, I was asking is the second part of the question was, in the IFB Refrigeration business who would be holding the remaining 55%, 56% equity stake.

Prabir Chatterjee — Director and CFO

Lot of companies are there which. There are some, the employees of different companies. There might by appliances, [Indecipherable] is there, IFB Global is there, all of them are in that.

Vineet Prasad — Investec Capital — Analyst

Okay, so why haven’t we taken this part in the standalone entity itself given we have had some experience in the past where you have done trial runs, just launched, made a pilot launch maybe sometime in 2017, ’18.

Rajshankar Ray — MD and CEO of Home Appliance

So you know, Raj Shankar, here. As I said a few minutes back, it may not be the right time for us to talk on behalf on IFB Refrigeration Limited because it is a standalone company. Now. what I was saying a few minutes back also was the focus that a standalone company brings to a very large segment with high investments and higher revenues and the advantages around that would have probably been the valuation criteria. But we could take this subject offline. Say for us to get — the reason why IFB Refrigeration Limited per se is an independent company would not be exactly right. And they are still in the process of the final product launch to roll out, etc. So maybe we could take this offiline or in the next quarter when things are more final, we could actually put across a note for everyone on this.

Vineet Prasad — Investec Capital — Analyst

Understood. No worries, sir. Sir, lastly can give some timelines on the refrigeration business how IFB Refrigeration or from for that matter IFB Industries is looking at this business let’s say in the next year and your perspective what are we trying to do there. What type of products will be launched. Will we be targeting a particular segment, any thoughts there.

Rajshankar Ray — MD and CEO of Home Appliance

So IFB Industries is a equity investor in IFB Refrigeration Limited and this is a long-term investment for IFB Industries Limited as a company. As far as the product plan, etc. IFB Refrigeration Limited is concerned, they are still in the final stages. So I think we can wait a quarter and we will know. My understanding is that they are planning a presence across the mass and mid premium segment. And products is competitive in the market.

Vineet Prasad — Investec Capital — Analyst

Thank you so much.

Operator

Thank you. [Operator Instructions] We have the next question on line from Abhinav Jain from SG India. Please go ahead. Mr. Jain, can you hear us?

Abhinav Jain — SG India — Analyst

Yeah, I can. It’s just a question about the demand and the strategy goingforward for the other divisions, the engineering division. How the scenario is looking like there in terms of obviously from a demand perspective, how is the automotive industry. We heard it doing well but is IFB Engineering division winning more market share in the current existing products, and how the motor division is doing. A broad comment on the next from today’s vantage point, how does the next few years or a few quarters look like.

Prabir Chatterjee — Director and CFO

I would request Arup Das to answer on engineering and then motor, Anand will explain.

Arup Das — Head of Marketing, Engineering Division

Good afternoon, this is Anup Das. Answering your first part of the question as far as engineering division is concerned, the last quarter, was reasonably the performance was quite pleasing and of course, the month of December, was a big lull generally. All the OEMs shut down their plants for a week or more. Going forward in this quarter, I think the 2-wheeler segment is going to have a metered requirement. There is a regulation of OBD-1, OBD-2 which is on-board diagnostics. So that regulation, the OEMs are trying to control the stock so that non-compliant [Indecipherable] not left with the dealer. So February and March is expected to be bit lull as far as 2-wheeler is concerned. As far as 4-wheeler is concerned, the demand is reasonably strong. And is expected to grow in the same fashion. Commercial vehicle also is expected to grow. So barring the 2-wheeler, this quarter, the automotive sector must do reasonably well.

Abhinav Jain — SG India — Analyst

And from IFB positioning perspective, are you able to increase your share for vehicles within your existing customers.

Arup Das — Head of Marketing, Engineering Division

Yeah, we try to be there where we were not there. So in many product category of different OEMs where we were not there, we have ensured we got out business there. So the bids which happened in the market does not affect us because where we were not, we were doing — now with our brand in that segment, we are able to increase our growth higher than the market growth.

Abhinav Jain — SG India — Analyst

One question related is with the shift in Powertrain from IC engines to electric powertrain, Does that impact on an average basis in your portfolio, does that impact your sales, because are there a lot of transmission components which are connected to an internal combustion engine in your portfolio or it does not impact too much. Say for example, if 100% levers are moved to EV today as an industry for 4-wheelers, what percentage of IFB’s revenues would get impacted because you have a transmission IC Powertrain related transmission component in your product portfolio.

Arup Das — Head of Marketing, Engineering Division

It’s a good question. If you see the market segment or market movement in the EV category, it’s mainly scooters, which has picked up numbers. It is around one lakh volume per month. Whereas total IC engine 2-wheelers is about 18 million per year. So that comes to around 1.2 million going by the current volumes which the EV is doing. So, it is about 3% to 4% of the market. Now that too in the scooter segment. Our main pie is in the motorcycle segment and that too on the higher cc, more than 125 and above. So this we had also parallely moved into the EV segment, the OEMs who have already started going for localization. Even the smaller players, we have already pitched in. We are developing components, so localization is happening. Once this happens, we will be ready. As far as 2-wheeler is concerned, other than Tata Motors, the main player, the numbers other than are pretty low, it’s around 6,500, 7000 a month, compared to 3,50,000 volume of 4-wheelers which happen every month. So going by these numbers, I think the disruption, which you are talking is very logical. We feel we don’t envisage anything at least at this juncture as far as blocking our sale because we are getting into businesses in the non-automotive sector also, which is IC engine. So it will not impact much as far as IFB is concerned. We are placing our product category in such a way we don’t get much impacted.

Anand Reddy — CEO of Motor Division

This is Anand here. On the motor side, right now the appliances motor we are investing around the INR40 crores to build up a capacity of 2 million washing machine motor and air conditioning motor, one million each. For which there is a huge demand outside of our captive requirements. We plan to sell 2%, 3% of our capacity also on the captive. And on the automotive motor. we have augmented our product line by introducing wiper motors and other product like BLDC motor which we should start production within the next two three quarters. And we have to have a increase in top-line by around 40% for the current financial year in our automotive motors.

Abhinav Jain — SG India — Analyst

And 2 million that you’ve talked about, does not include automotive and BLDC motors

Anand Reddy — CEO of Motor Division

No. One million of machine machine BLDC motor and one million of air conditioner BLDC motor.

Abhinav Jain — SG India — Analyst

Okay. And again, moonshot question, not a moonshot but say a three to five year. horizon question. What would be the total revenue potential, both captive and outside for the motor division.

Anand Reddy — CEO of Motor Division

It will be roughly around INR350 crores.

Abhinav Jain — SG India — Analyst

Okay, got it. Thank you so much.

Operator

Thank you. We have the next question from the line of Sudarshan Mall from Dhunseri Investments. Please go ahead.

Sudarshan Mall — Dhunseri Investments — Analyst

Thanks for the opportunity, sir. My questions were more pertaining to that refrigeration business. While Raj sir has said that it would be inappropriate for him to comment. However, If I just can know the financials of the business currently.

Rajshankar Ray — MD and CEO of Home Appliance

Financials of which businesses, please.

Sudarshan Mall — Dhunseri Investments — Analyst

Refrigeration business.

Prabir Chatterjee — Director and CFO

So it has not started yet actually. It will start from April beginning.

Rajshankar Ray — MD and CEO of Home Appliance

Rajshankar here. I have a suggestion because there are 2, 3 questions before this also and we’ve also asked this. What we can do is that in the next quarter, there can be a common note on the refrigeration company per se and their product range, product plans, pricing, etc. would have been matured by them. Would that help?

Sudarshan Mall — Dhunseri Investments — Analyst

Certainly. That will help because they are paying pretty good amount of funds from our balance sheet. So it will be interesting to know what is the opportunity size there. I think it will be very big.

Rajshankar Ray — MD and CEO of Home Appliance

So for the opportunity in IFB Refrigeration Limited that IFB industry sees as a result of its investment and what the plans are for that company, etc. I think what we can do is that because there are 2, 3 questions on this. Mr, Chatterjee can actually share a common note on this in the next quarter and the plans for IFB Refrigeration Limited will also be much more mature by then. So i think it will be the right time to share with you. If that is okay with you, then we will do this thing.

Sudarshan Mall — Dhunseri Investments — Analyst

Certainly, sir. That would be very helpful. Just one question regarding this. Who owns the brand IFB Industries or refrigeration company.

Prabir Chatterjee — Director and CFO

IFB brand is with IFB Industries Limited.

Sudarshan Mall — Dhunseri Investments — Analyst

Okay, thank you sir.

Operator

Thank you. We have the next question from the line of Manoj Gori from Equirus Securities. Please go ahead.

Manoj Gori — Equirus Securities — Analyst

Yeah, thank you once again. Sir, my question is more to do with the slowdown in demand. So Rajshankar-ji, if you can highlight, because see, normally, when we look at over the last 3, 4 months, even the inflationary pressures definitely seem to be behind us and things have cooled off significantly when we look at the RM [Phonetic] plays is also that be the freight costs or even the food inflation. So what is actually weighing on the consumer sentiment, like based on your internal assessment of probably the feedback that you would be receiving from your partners and from your employee. It would be great if you can share some light over that.

Rajshankar Ray — MD and CEO of Home Appliance

So Manoj, you will remember that on this point, we also had several rounds of discussion before. I will tell you how we look at it. So if you speak to the large partners across India, if you look at what’s happening with competition, etc., then the voice that you will get is that there is definitely a tempering of the demand. And we will hear that in November-December of the year. So if we were to look at the voice from the market, the voice would be that demand is tempered from let’s say the peak of the pot lockdown to or what we would generally expect from the countdown where the flow of customer is [Indecipherable]. But the way, internally we see this is that given the network size that we have and this agenda or extraction that we still need to do much better and the opportunities that we have by doing the distribution fees which I was explaining a while back–

Manoj Gori — Equirus Securities — Analyst

The question was more from a macro point of view because I know obviously you have been beginning efforts and you are not the one only to get impacted in the current slowdown. So it was more to do with the consumer mindset like what is actually stopping them to buy consumer durable products or the home appliances products. Because I personally believe the inflationary pressure especially in the last three-four months. are definitely behind us.

Rajshankar Ray — MD and CEO of Home Appliance

So if I were to tell you honestly Manoj, we don’t really know. If you were to ask me why did demand go down in November and December, the honest answer is that we do not know. There is less impact of let’s say higher prices across the board. But there is also a reality that the financing available to consumers currently is mitigating a lot of that inflationary pressure. Now what I mean by that is that a product is costing 3,000 rupees and now it costs let’s say, 3,500 rupees. If you really look at it in terms of the financing options available to customers then the actual per month impact is very little. So it is not that everything can be answered by inflationary pressures. There is much more than we can do at IFB to get more demand. And if you really look at what happens to demand per se that you may see two three months of subdued demand but then invariably another month or two comes when the demand is much. let’s say, look at the macro picture, the way you are wanting. Given the low penetration in India medium-term the demand, the problem should not be there at all. That is my personal belief.

Manoj Gori — Equirus Securities — Analyst

Got it, sir. That was the only question,.

Operator

Thank you. That was the last question. I would now like to hand it over to the management for closing comments.

Prabir Chatterjee — Director and CFO

Thank you everybody for joining the call. Thank you very much.

Operator

[Operator Closing Remarks]