Orient Electric Ltd (ORIENTELEC) Q4 FY22 Earnings Concall Transcript

Orient Electric Ltd (NSE: ORIENTELEC) Q4 FY22 Earnings Concall dated May. 11, 2022

Corporate Participants:

Dhruv Jain — Ambit Capital — Analyst

Rakesh Khanna — Managing Director & Chief Executive Officer

Saibal Sengupta — Chief Financial Officer

Analysts:

Bhargav Buddhadev — Kotak Asset Management Co.Limited — Analyst

Renu Baid — IIFL Holdings — Analyst

Praveen Sahay — Edelweiss Financial — Analyst

Nitin Arora — Axis Bank — Analyst

Rahul Gajare — Haitong Securities — Analyst

Devansh Nigotia — SIMPL — Analyst

Akash Javeri — Perpetual Investment Advisors — Analyst

Nirav Vasa — Anand Rathi — Analyst

Amber Singhania — Nippon India AMC — Analyst

Bala Subramaniam — Arihant Capital — Analyst

Shubham Agarwal — InCred Capital — Analyst

Naushad Chaudhary — Aditya Birla AMC — Analyst

Harsh Dhanuka — Ncubate Capital Partners — Analyst

Nikhil Kale — Axis Capital — Analyst 

Presentation:

Operator

Good morning, ladies and gentlemen. Welcome to Orient Electric Limited Q4 FY’22 Earnings Conference Call hosted by Ambit Capital. [Operator Instructions] I now hand the conference over to Mr. Dhruv Jain from Ambit Capital. Thank you, and over to you, sir.

Dhruv Jain — Ambit Capital — Analyst

Thank you. Good morning, everyone. Welcome to Orient Electric’s 4Q FY’22 earnings call. From the management’s side, today we have with us Mr. Rakesh Khanna, Managing Director and CEO; and Mr. Saibal Sengupta, the Chief Financial Officer. Thank you, and over to you, sir, for your opening remarks.

Rakesh Khanna — Managing Director & Chief Executive Officer

Good morning, everyone. This is Rakesh Khanna. Thank you, all, for joining us for our full-year end and quarter post results discussion. I hope everyone is keeping good health. We are not letting our guards down and all precautions are taken to ensure employee well-being. Financial year ’22 posed several challenges to the business intermittently due to COVID disruptions and geopolitical disturbances. Despite that, we have managed to navigate through these upheavals. The company delivered an overall resilient performance for the year financial year ’22, and posted an aggregate revenue of 21% year-on-year, and the challenging demand and operational conditions. As lockdowns receded and vaccinations permeated, people’s lives started to return to normal gradually. As a result, customer sentiments improved and we experienced encouraging revival for the demand for electrical durables.

For Q4 financial year ’22, our channel partners traditional stock filling of fans and coolers for ongoing summer season fell short of expectations. Negative sentiments arising from Omicron wave caused them to postpone their buying decisions. On the other hand, our Lighting & Switchgear segment has been performing very well and witnessed good momentum. With a double-digit growth both in top line and bottom line, this segment delivered creditable performance. Clearly, our strategic efforts in the recent past are yielding great traction within this segment.

Financial year ’22 was another great example showcasing our abilities for leveraging our brand capital and our distribution strengths. We are continuously implementing exciting market activation programs and expanding our geographical reach via our wash distribution network. FY’22 further witnessed deepening of OUS footprint into Southern parts of India and Eastern parts of India. On the distribution front, we have integrated its digital initiatives into its overall distribution framework, which is increasing adoption on ground and started doing marketing side. The complete transition its distribution growth for its Fans segment in the target markets of Odisha and Bihar with the direct to dealer approach from its traditional approach of selling via master distributors. This approach is assisting in increasing Orient’s market share in these under-penetrated areas.

The main area of concern for financial year ’22, and Q4 was relentless inflation in commodity prices. As you all know, the increase in commodity prices has kept margins under pressure since Q1 financial year ’22 and continued until year end. However, during quarter four financial year ’22, the company decided on taking aggressive price increases on the back of steep cost increase to protect the gross margins. Besides, the favorable swings in Consumer Luminaires and switches enabled higher gross margins. All this has maintained overall gross margin of the company at a steady state, quarter-on-quarter at around 48%. While currently raw material prices are holding due to global demand-supply situation, inflation is expected to continue over the medium term. Therefore, gradual price releases and systematic cost reductions is being actively worked upon to cushion the inflationary impact.

The ECD segment, which is home to our appliances and [Indecipherable] business, is a significant purchaser of such affected commodities and was therefore impacted the most. The Lighting & Switchgear segment, which is less connected with the vagaries of commodities remains minimally impacted.

On the expenses front, our other operating costs also saw an upward trend during Q4 and financial year ’22. As operations resume to normal, pre-COVID levels, ancillary costs such as distribution, marketing and travel, which were essential to drive business growth, came back into the system. Looking at our working capital, as of 31 March, ’22, it has increased by 17 days from a disproportionately eroded base in the previous fiscal year levels. However, due to better working capital management, the working capital days has steadily been improving from 47 days in financial year 2020, to 28 days in financial year 2022. Readiness of stocks in anticipation of seasonal demand, coupled with negative sentiments of price increase and high-channel inventory resulted in higher year-end inventory. We expect the overall working capital requirements to continue reducing gradually over the years.

The revenue from our Electrical Consumer Durables segment, grew overall by an impressive 19% year-on-year for the full financial year 2022 period, even though it dropped by 11% year-on-year in the fourth quarter of financial year 2022. The negative sentiment surrounding the Omicron wave and the Eastern European conflict during the quarter ended March ’22, kept the demand for ECD segment stagnant until mid-March. However, secondary sales continued unabated as anticipated, which resulted in inventory drawdown on the distributor spreads, as well as helped maintaining market shares. With concerns of Omnicom variant reducing, we hope that the quarter one would be more optimistic and the demand will pick up.

In ECD segment, exciting new products were introduced by consumer insights. Company expanded the BLDC range fans with models like i-Tome, i-Falcon, Ecotech Pro. New range was introduced in decorative fans portfolio with modules like Jazz Art and [Indecipherable] Glass Lined water heaters and Modular Metal coolers were introduced in the Appliances categories.

Our Lighting & Switchgear business has been picking up very well due to multiple years of strategic efforts. With every passing year, this segment has been increasing the share of the company’s total revenue. For FY’22, I’m pleased to inform that its share in total revenue now stands at 27%. FY’22 for the Lighting & Switchgear business grew impressively. For the quarter, this segment delivered strong growth of 15% Y-o-Y.

The B2C segment continued to display encouraging traction led by consumer lamps and luminaires, enjoying robust demand from homes, small offices and showrooms. In the B2B segment, both private and government business inquiries increased and order bookings have started. Greater attention is being given to the tender business within the infrastructure sector. Multiple bids are being sought after by NHAI highways, street light National program, the Railways and by the smart cities. The government’s push on many of these projects, makes the outlook for tender segment of the business look promising.

Furthermore we are very optimistic about Facade lighting range. With proven designing strength and enhanced capability to deliver, which has resulted in prestigious installations like the 4-kilometer long Dwarkadhish Bridge, the Bhakra Nangal Dam and the Aligarh Smart City. Besides, during the year, a bouquet of new products were launched like emergency LED batten, decorative lights and others. It is encouraging to see the Switchgear business gaining traction is spreading its wings with portfolio expansion and channel expansion into domestic and international markets. Company’s new range of switches, catering to mass premium segments is being well received by channels and consumers alike, and volumes continue to pick up pace each month.

Going forward, the change in product mix, channel mix, gradual price hikes, easing of commodity prices and new product launches, should allow us to improve our margins from present levels in the medium term. We have taken our focused projects to speed up Sanchay, which is our cost reduction program for a total cost outing, e-commerce to establish Orient as a front-runner in this growing channel, and GTM for gaining shares in trade channel. We prepare ourselves for the coming omnichannel digital future. We are initiating the project of greenfield plant in Hyderabad, which is expected to be commissioned towards the end of financial year ’23. This will help us expand our premium product portfolio within ECD division, further improving the quality of our earnings over time.

As I mentioned in my earlier calls, we have continued to invest in our long-term strategic plans, cost control measures, improved efficiency in production, and hence trade partnerships and empowering seasonal partners, which will enable us to grow faster than the market. Most importantly, company continues to reinforce its consumer-centricity ethos with tangible actions to fold up our vision and deliver sustainable growth. This will keep Orient as a highly relevant player in the years to come.

On this note, I will hand it back to you Dhruv.

Questions and Answers:

Operator

Thank you. [Operator Instructions] The first question is from the line of Bhargav Buddhadev from Kotak. Please go ahead.

Bhargav Buddhadev — Kotak Asset Management Co.Limited — Analyst

Yeah, good morning, team. My first question is on Odisha and Bihar.

Operator

Sorry to interrupt. Mr. Buddhadev, your audio is sounding very soft. Can you speak a bit louder?

Bhargav Buddhadev — Kotak Asset Management Co.Limited — Analyst

Yeah. Can you hear me now?

Operator

Much better. Thank you. Please proceed.

Bhargav Buddhadev — Kotak Asset Management Co.Limited — Analyst

Yeah. Good morning, team. My first question is, in Odisha and Bihar we have adopted this direct dealer approach. So, is it possible to elaborate a bit in terms of key positive trends that we’re seeing here, and whether this model is replicable in other states?

Rakesh Khanna — Managing Director & Chief Executive Officer

Good morning, Bhargav. We have taken up these two markets for going direct. As I have always, maintained that we have a very strong base of master distributors who bring phenomenal strength to us in the states where they have been — their presence has been since even generations and the kind of relationships that they enjoy is phenomenal. There are states where we have seen that there isn’t interpenetration for various reasons. And in these states, we have decided that we will go direct to the market. Both the states are showing very encouraging results, and it’s a little early to make a statement about how it will finally shape up. But all I can tell you is that within the last 6 months that we have actively started setting up these states, the results are very, very encouraging and we are happy with our decision. Going forward, I will not like to make any clear statement about it, but I can assure you that wherever the penetration is low, we will take a view on that and if required we will make a complete change in the go-to-market strategy in that state.

Bhargav Buddhadev — Kotak Asset Management Co.Limited — Analyst

Okay, Understood. And my last question is, you mentioned the market share gains in southern states in fans. So, is it possible to quantify a bit in terms of how has been the market share gains, and how has been the increase in the channel footprint? And that will be from my side.

Rakesh Khanna — Managing Director & Chief Executive Officer

Unfortunately, there no good syndicated data that I can rely on and make that statement. What I can tell you is that of the total growth that we have achieved, a significant part of the growth has come from South market.

Bhargav Buddhadev — Kotak Asset Management Co.Limited — Analyst

Okay. Understood. And how has been the increase in the channel footprint in this region?

Rakesh Khanna — Managing Director & Chief Executive Officer

The channel footprint, Bhargav — earlier also I maintained, the channel footprint, we do not measure by the number of retail counters we open because our reach is already very large. What is important is, how many direct number of counters are we now started influencing and how are we ensuring that our influence on the counter is steadily increasing and the direct reach is increasing. So, our direct reach is continuously increasing and we are adding in the range of 10% to 20% in every state in terms of the number of the direct reach to the retailers.

Bhargav Buddhadev — Kotak Asset Management Co.Limited — Analyst

Okay. Great, sir. Thank you very much and all the very best.

Rakesh Khanna — Managing Director & Chief Executive Officer

Thank you, Bhargav.

Operator

Thank you. The next question is from the line of Renu Baid from IIFL. Please go ahead.

Renu Baid — IIFL Holdings — Analyst

Yeah, good morning, everyone, and thanks for the opportunity. My first question is to understand broadly — if you see the headline performance of ECD seems to be much faster than the other figures of reported results. And your comments also on the March offtake from channel has not been so encouraging. So if you can give us some inputs in terms of how has the demand panned out in the last 45 days of the summer period, especially April, May. And is the channel inventory as well as the inventory with which the company has been stocking — has that been eased out? Also, if you could give us some flavor in terms of overall in the Fan segment where there has been under recovery on the cost side, what has been the kind of price actions and by when do we expect to recoup our margins in this portfolio?

Rakesh Khanna — Managing Director & Chief Executive Officer

Great. Renu, and let me answer it in two parts. First is the margin effect and second is the volume. If you would have noticed, we have been able to implement price increases significantly more than the competition during this particular quarter. And we believe that it’s important to finally be able to pass on the cost increase to the consumer because from the consumer side, I don’t think there is much reluctance considering the fact that it has a small share of the consumer’s wallet and the consumer’s total domestic spend. However, there are competitive pressures which will influence our decision and timing on the price increases. With that, we have to also see how the lag in price increase, with respect to competition happens. We took a lead during quarter four in terms of price increase, with respect to competition. We sustained it. We believe going forward in quarter one, this pressure will ease out and overall price increases will happen in the industry. However, April onwards, we are seeing the traction building up much more stronger. And what we also mentioned is the secondary growth, that is the rail fail to the consumer. And the rail fail to the consumer through our market share has been happening unabated. And that gives us confidence that it is in the interest of the entire industry that the costs are passed on to the consumer. So currently, we see traction building up, April, May, and the price increases should happen and also the commodity should start easing, Some of the commodities we are also seeing has started easing, but it’s still volatile.

Renu Baid — IIFL Holdings — Analyst

Possible to quantify the price hikes that we have taken in…

Operator

Sorry to interrupt.

Renu Baid — IIFL Holdings — Analyst

Sure.

Operator

Ms. Renu Baid, may we request that you return to the question queue? There are participants waiting for their turn.

Renu Baid — IIFL Holdings — Analyst

Sorry.

Operator

Thank you. The next question is from the line of Praveen Sahay from Edelweiss Financial. Please go ahead.

Praveen Sahay — Edelweiss Financial — Analyst

Yeah. Thank you for taking my question. So, I’ll just a follow on the last participant question. Can you able to quantify the price hike in the fan and as well as contribution of a premium fan for a quarter and the year?

Rakesh Khanna — Managing Director & Chief Executive Officer

The price hike during the year has been in the range of 15% to 18%, with a cost increase, which has been in the range of 18% to 20%. That actually tells the difference in the gross margin that has happened. As of now, we need to increase — if we have to go back to our margins, it is very simple that you can — you understand how much of percentage increase we should get to regain the desired margins that has historically been the — Orient’s and the industry margins.

Praveen Sahay — Edelweiss Financial — Analyst

And the premium fans, sir?

Rakesh Khanna — Managing Director & Chief Executive Officer

The premium fans is — again, it’s a moving target as to what we decide as a premium, and industry is still not with a single definition of premium because most of the industry talks about premium from INR3,500 onwards fans and INR3,000 onwards fans. Whereas, as the prices keep on increasing, the categories that start moving into price band keep on changing, and therefore it appears that the premium is growing. Actually speaking, the premium is the top-end as we define, and we start from our Aero series onwards, which we call the premium brands. That’s in the range of 10%.

Praveen Sahay — Edelweiss Financial — Analyst

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

Operator

Thank you. [Operator Instructions] We’ll move onto the next question, that is from the line of Nitin Arora from Axis Bank. Please go ahead.

Nitin Arora — Axis Bank — Analyst

Hi, sir. Thank you for taking my question. I’m sorry, I’m just trying to add up things here. So what we took a call — what I’ve been able to understand from your opening remarks is, we took a call of not sacrificing gross margin at different product levels, and you increase prices, rather than chasing for growth at least at the primary level. Secondary as you said, the growth was still taking place, which led to the lower inventory in the channel. Is that correct?

Rakesh Khanna — Managing Director & Chief Executive Officer

Yes, Nitin.

Nitin Arora — Axis Bank — Analyst

So, sir, the external environment in Q1 would not be indifferent, right? I mean, in the medium term, the competitive intensity would be there. And again, if our call is maintaining the gross margin, then you would go for price hike and reduce the inventory part. Or let’s say, look for a lower volume growth. So, I just wanted to understand, is industry growing very significantly higher, that’s where the confidence is coming that things will eventually fall in place from Q1 onwards? If you can help us on the industry growth-wise — even category-wise, like you mentioned about the switchgear or fans, and plus the rating change, which is coming up, do you see a pre-buy there? That’s why the confidence is coming? Just if you can articulate that better it will be helpful. Thank you, sir.

Rakesh Khanna — Managing Director & Chief Executive Officer

A brilliant question, Nitin, I must say. I have confidence in the industry and this space. And this particular industry and space has always shown a lot of wisdom in terms of protecting the margins and the shareholders well. And therefore, I’m reasonably confident that in some time, the cost will get passed on and the margins across the industry will come in place. Yes, you are right, there is always a lag between different players because it’s an independent call and one or the other player has to take a lead. But again, if you will see the historical movements, the fact that so much of price increase has happened across the industry, all players have moved with a lag of one month plus or minus. That has happened and it will continue to happen. I don’t think that situation will happen where one player takes the price increase that everybody else doesn’t. But that’s not likely to happen. And our response to the market will also be aligned to how the overall industry is moving, and we will ensure that while we protect our margins, we always keep our eyes on the volume, also.

Nitin Arora — Axis Bank — Analyst

And sir, your comment on the…

Operator

Sorry to interrupt Mr. Arora. Sir, may we request that you return to the question queue.

Nitin Arora — Axis Bank — Analyst

Sure. Fine.

Operator

Participants are waiting for their turn.

Nitin Arora — Axis Bank — Analyst

Fine. Thank you.

Operator

Thank you. We’ll move onto the next question, that is from the line of Rahul Gajare from Haitong Securities. Please go ahead.

Rahul Gajare — Haitong Securities — Analyst

Yeah, hi. Good morning, gentlemen. I just have one question. Could you discuss your capacity utilization in the fans and the capacity that you will add at your new Hyderabad facility? And which are the other products that you’ve planned at this new facility? Thanks.

Rakesh Khanna — Managing Director & Chief Executive Officer

Great. Rahul, currently the capacity utilization is of course, more than 100%, and we are really stretching on our capacity. We are forced to go outsource some of the fans as of now. The capacity in the new Hyderabad factory will start with at the average level of around 4 lakh fans per month, which we steadily increase. We will also move the capacities between different factories to ensure that there is an — that there is a right balance between all the three factories, and it will also be catering to the increased demand. We are going to be looking at new models, new lines, a lot of automation, lot of improvement in quality, getting to international levels for the European markets, etc., where we need a very high level of finish. So, this new factory is going to be in the direction of future growth.

Rahul Gajare — Haitong Securities — Analyst

Okay. And you want to start with 4 lakhs but what is the peak capacity that you’re thinking about?

Saibal Sengupta — Chief Financial Offcier

Rahul, just a small clarification. What Mr. Khanna mentioned just now about the capacity of 4 lakhs. Let me tell you, the utilization today this 100% is at the peak levels and you would appreciate that it normally swings in between peak and lean. The lean comes down to 40%, 50% level. And yes, whatever the 4 lakhs fan is only the starting position. It will always be a graded upswing of capacity building, and to start with, this is the peak capacity that was started.

Rahul Gajare — Haitong Securities — Analyst

Just 4 lakh is going to be the capacity?

Saibal Sengupta — Chief Financial Offcier

Yeah.

Rahul Gajare — Haitong Securities — Analyst

Okay. Thank you.

Operator

Thank you. The next question is from the line of Devansh Nigotia from SIMPL. Please go ahead.

Devansh Nigotia — SIMPL — Analyst

Yeah, sir. Thanks for the opportunity. Sir, in terms of the distributor agreement that you mentioned, of how you have changed it in Odisha and Bihar. I think we had similar issue in Gujarat, probably one or two years back. So, I’m just trying to understand what is the overall thought process between having a master distributor and doing a go to market.

Rakesh Khanna — Managing Director & Chief Executive Officer

Devansh, I’m not sure which issue you are talking about. Gujarat has been very stable. It has been performing well for us. We have a very strong distributor over there. And during the sad demise of one of our distributors, the switch over was very smooth with our earlier distributors. And it continues to have a very, very strong relation in the market. So I’m not really sure on which particular aspect you’re talking about. But let me tell you one thing, that whichever market we find that the current distributor is not able to deliver the results that we want, we are open to make a change. We will ensure that we get full penetration in the market as desired. If we get a very strong master distributor, we will take a very strong master distributor, but since these are very, very few people in the market, who have that kind of a strength, we are — we will go direct in the markets where we believe that’s better for the market.

Devansh Nigotia — SIMPL — Analyst

Okay. And how does, let’s say, since you mentioned largely an underpenetrated area is where we are trying to go to market, and how would margins and working capital share help in having a distributor and going directly? Some direction, if you can give.

Rakesh Khanna — Managing Director & Chief Executive Officer

Okay. First thing, it’s not going to effect on the working capital. The working capital is likely to remain similar. Not much change. In fact, in the new markets we are entering with far higher discipline because we are starting on a clean slate. So we’re starting with much much superior discipline. So we believe that our working capital is likely to improve in these markets.

And in terms of market penetration, because we are going directly access to the market and to the retailers is closer, that will also hopefully, help us to build much stronger relations and build the market shares. As I said, the initial six months have been very, very encouraging, and we are very happy with the performance in these two markets.

Devansh Nigotia — SIMPL — Analyst

Okay. And in terms of margin, let’s say, when we are not paying the distributor margin — master distributor margin and the cost for us to actually go and distribute at retail level. So how does that balance happen?

Rakesh Khanna — Managing Director & Chief Executive Officer

It’s likely to remain neutral because the distributors — they take up a lot of cost, which we will start incurring directly. However, that margin is same. It’s likely to remain neutral. A little plus-minus, we will see how it goes. The idea is not about cutting cost and cutting corners here or there. The idea is about improving the distribution, improving the spread and improving the quality of distribution, quality of service, that’s the idea.

Devansh Nigotia — SIMPL — Analyst

Okay. And if f you can just elaborate on the new product launches that you mentioned, especially in terms of Cooler and Appliance category. What is the strategy on these new launches, and the thought process that we have at the moment?

Rakesh Khanna — Managing Director & Chief Executive Officer

So, Devansh, we have always been known for the innovative launches that we have been bringing. The product portfolio is very important, and to constantly keep on exciting the customers with new products, new finish, is very, very important. One of the areas where we are working hard to quickly expand the portfolio is, in power-efficient fence. This is a category which is going to swing phenomenally in some time on both sides, be it in terms of the range, the looks in the field and the performance of these fans. The market is changing very fast and this is where we are bringing in very quickly new models.

Metal cooler is another area where we are confident that, that’s going to give us results, and therefore that’s one area where we are trying to bring in more models, although, we are being very cautious about slowly bringing in new models and ensuring that they get established well. Lighting is an area where we are constantly expanding, be it in Facade, be it in Street light, be it in Professional light, we are constantly expanding there.

Devansh Nigotia — SIMPL — Analyst

Okay. This is it from my side. Thanks a lot.

Operator

Thank you. [Operator Instructions] The next question is from the line of Akash Javeri from Perpetual Investment Advisors. Please go ahead.

Akash Javeri — Perpetual Investment Advisors — Analyst

Hello, sir. Good morning. Thank you so much for the opportunity. In your opening remarks, you mentioned about expanding your BLDC range of fans. And just in the previous participant answer, you mentioned that one big segment for you would be power-efficient fans. So, my question was, do you see the fan market turning entirely or to BLDC in the coming years? And the follow-up question to that would be, how has the cost of technology evolved over the last few years for fans. That would be it from my side. Thank you so much.

Rakesh Khanna — Managing Director & Chief Executive Officer

So, Akash, we all know that BEE rating is likely to become mandatory in some time, although government started aggressively, but for some reason, they have been little slow. But since the main certainly has already come, it’s a matter of time that will happen. As the awareness in consumer starts going up, and we also know that consumers are very quickly becoming aware about the environment, about power efficiency, green world, etc., etc. So the swing is happening and happening at a very fast pace. Therefore, it’s important that we expand quickly in this particular segment. How much will shift it depends on how quickly the cost of BLDC fans keeps on coming down. A significant part of the BLDC fan cost is in the electronics. Electronics, historically, have always got into cost reduction at a very fast speed as soon as the scale start building up, and there is a very good chance that the same graph will be seen in this category also, and the cost will start coming down. And that’s when the swing will happen, but it’s a matter of time and difficult to predict how fast that swing will be.

Akash Javeri — Perpetual Investment Advisors — Analyst

Sure. Thank you so much, sir.

Operator

Thank you. [Operator Instructions] The next question is from the line of Nirav Vasa from Anand Rathi. Please go ahead.

Nirav Vasa — Anand Rathi — Analyst

Hello, sir, and thank you very much for the opportunity. So, sir, as you inform that BEE ratings are going to be — are expected to be applicable in the country, very soon. So, according to you what is the significant benefit can — which can come to the organized players at the cost of unorganized funds? Do use foresee a scenario wherein the unorganized market, which is mainly operating on the price and their price drive — lower price bracket, that will be hit hard? Or how do you see this rating change impact on the unorganized players, especially the smaller and local ones? Thank you.

Rakesh Khanna — Managing Director & Chief Executive Officer

See, slowly we are seeing that the cost gap between the unorganized and the organized is reducing, and that’s one of the reasons why organized — unorganized is finding difficult to stay in the market. The consumer also is becoming more involved in this particular category. There was a time when consumers was not involved in this category, and it was just a product right up to the ceiling, not able to be seen. But now the consumer is more careful, the ceiling hikes are coming down, the fans are more visible, they want right brands, the right — they want right quality, they are careful about the power consumption, they are careful about the noise. And if all that quality has to be delivered, an organized player is able to deliver it at much lower cost as compared to unorganized. So, that’s where, I think the swing will start happening.

Nirav Vasa — Anand Rathi — Analyst

And sir, in the initial launch of initial fan — initial launch of BLDC motor fans, according to you, what is the increase in cost of — of cost increase because of this BLDC thing?

Rakesh Khanna — Managing Director & Chief Executive Officer

See, we know it that the normal fan when used to cost around INR1,200, the BLDC fan used to cost to the customer INR3,000. So it was more than twice the price. Today, it has come down to nearly 1.5 times the price, and it can steadily come down to 1.2, 1.3 times the cost. So that’s how it is working.

Nirav Vasa — Anand Rathi — Analyst

Thank you, sir.

Operator

Thank you. [Operator Instructions] The next question is from the line of Dhruv Jain from Ambit Capital. Please go ahead.

Dhruv Jain — Ambit Capital — Analyst

Thank you, sir. Sir, I had a question on lighting., You mentioned in your investor presentation that lighting business grew by about 10% this quarter. So I just wanted to understand what would be the price hikes that you would have taken? If you could just break that up into the mix change that would have happened, and also their raw materials price hikes. Thanks.

Rakesh Khanna — Managing Director & Chief Executive Officer

So, Dhruv in lighting, the price hikes have been fairly nominal, not much of price hike has happened, because while the commodity price went up there were good work done by the team in terms of the circuits, and the new technology that comes in helps us to really bring down the cost in the circuits. And not much of a price hike had to be taken in lighting.

Dhruv Jain — Ambit Capital — Analyst

[Indecipherable]

Operator

Hello? I’m so sorry, sir, I’m not able to hear you clearly. Hello? Members of the management team, are you able to hear me?

Saibal Sengupta — Chief Financial Offcier

Yes, yes. We can hear, you’re audible.

Operator

Dhruv, are you done with your question?

Dhruv Jain — Ambit Capital — Analyst

Yes, of course. Done. Thank you.

Operator

Thank you. The next question is from the line of Amber Singhania from Nippon India AMC. Please go ahead.

Amber Singhania — Nippon India AMC — Analyst

Yeah, hi, sir. My question pertains to the BLDC answer, which you had done earlier. Just one clarification. The earlier timeline of July ’22 for BEE rating, does that mean that, that is not there anymore, and it will be a new timeline, which will be coming in? That is one. And secondly, sir, just wanted to understand from the BLDC perspective, how do you see the market panning out in terms of — do you see that replacement demand will come in this segment, significantly? Because what I understand, please correct me if I’m wrong, the fan is not a serious energy guzzler. So, the incentive for people who are already having fans to replace with a BLDC fan is not significantly higher at this juncture. So how do you see that segment panning out? Is there any color from the government side, that the government agencies will start replacing faster? Or how things will pan out on that line? What is your [Indecipherable] If you can share some light on that. Thank you.

Rakesh Khanna — Managing Director & Chief Executive Officer

Yeah. Amber, the first thing is, on the government deadline of July, not likely to happen because government has to give, technically, around six months notice. But now since we are already in May, it looks very difficult that July will happen. However, we are still waiting to hear from the government. Most likely, a new timeline will come. That’s my personal understanding.

The second, is fan a power guzzler? Actually speaking, in domestic area, fan is the second biggest power guzzler in houses. It’s — we used to feel that it’s air conditioners but air conditioners, heaters are not as much power guzzlers. Because fan runs full time, and that’s why it consumes a lot of electricity. The normal payback of good power-efficient fan is 1, 1.5 year. That’s it. The payback is very fast. Having said that, will everybody replace? Not very likely. Does the induction fan has its own advantage? Yes, they are a lot more [Indecipherable] in that sense. But overall, as the awareness start spreading and as the new generation coming up is more sensitive towards the environment, the swing is happening, the swing will happen, How fast, we all will see. As far as we are concerned, we are ready with the full BLDC range. We have a very strong inductions fan range and we are capable of responding whichever way the market will move.

Amber Singhania — Nippon India AMC — Analyst

Okay. And sir, is there any support from the government side or the institution you think might shift faster to BLDC in terms of the [Indecipherable] because they are all old fans and in the offices — government offices and all. So is there any support which is committed by the government or they’ve given any indication on that line?

Rakesh Khanna — Managing Director & Chief Executive Officer

Government has always improved these by insisting on the star guidelines. And in all products, we have seen government has come out with star guidelines and thereafter leave it to consumer awareness and preference to move into more power-efficient production. That’s what is likely to happen in fans allso.

Amber Singhania — Nippon India AMC — Analyst

Understood. And sir, just one last thing is, the current capacities of the old fans, is it fungible towards BLDC over a period of time when the industry moves faster to the BLDC side? Is it fungible or do we need to put up a completely separate capacity for that?

Rakesh Khanna — Managing Director & Chief Executive Officer

You see, this particular industry is not very capital intensive. So the shifts are not very expensive. It’s fairly easy to shift. So, these costs are not fixed.

Amber Singhania — Nippon India AMC — Analyst

Okay. Fine, sir. That’s it from my side. Thank you very much.

Rakesh Khanna — Managing Director & Chief Executive Officer

Yeah.

Operator

Thank you. We’ll move on to the next the question that is from the line of Bala Subramaniam from Arihant Capital. Please go ahead.

Bala Subramaniam — Arihant Capital — Analyst

Good morning, sir. Thank you so much for taking my question. Sir, in terms of market share, we are gaining market share from existing players or in terms of market growth?

Rakesh Khanna — Managing Director & Chief Executive Officer

Yeah, of course. When we said we are gaining market share, this is from existing players. The market is spread out and we have a lot number of existing players in the market. And while you would see that some of the players are becoming stronger and emerging stronger, and some of the players have kind of lost out. So yes, we are gaining at the cost of existing players, some of them are unorganized, some of them are organized. it’s a mix of all this.

Bala Subramaniam — Arihant Capital — Analyst

Okay, sir. Sir, in terms of price hikes, how you’re relative with your peers? Like you said — you have mentioned 15% to 18% price hike across the products. How you are relative with your peers?

Rakesh Khanna — Managing Director & Chief Executive Officer

Sorry, I have not understood your question right, please. Can you again say?

Bala Subramaniam — Arihant Capital — Analyst

Si,r in price hikes you have mentioned 15% to 18% across the products. How you are relative with your peers? How much your peers are implemented price hike?

Saibal Sengupta — Chief Financial Offcier

I think, how is it compared with the peers.

Rakesh Khanna — Managing Director & Chief Executive Officer

See, the peers is also in the similar range. In this particular quarter, the payers hike would be much lesser, and that can be seen from the published results where the gross margins have got either get or got protected. That’s where it’s a good way to make a as to how much price hikes have been there by one player versus the other.

Bala Subramaniam — Arihant Capital — Analyst

Yes, sir. I think you have mentioned like the growth is…

Operator

Sorry to interrupt Mr. Subramaniam. Sir, may we request that you return to the question queue. There are participants waiting for their turn.

Bala Subramaniam — Arihant Capital — Analyst

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Shubham Agarwal from InCred Capital. Please go ahead.

Shubham Agarwal — InCred Capital — Analyst

Hey, hi. Thank you for taking my question. So, just a small question with respect to the exports. Could you just comment how is exports this year in FY’22 and given that you’re already operating at 100% capacity, so, more than that. Should we expect exports to broadly be stable for FY’23 as well, at the same level?

Rakesh Khanna — Managing Director & Chief Executive Officer

These are two questions. One is about the capacity, and second about the exports. About the capacity, as Saibal clarified, the capacity when I say, 100% plus utilization, it is during the peak time. There are times when the capacity utilization is not 100%. The second is about the exports. We continue to be the largest exporter. There are markets which are doing well for us, and there are markets, which have faced headwinds. Markets like Sudan, markets like Sri Lanka, they have had geopolitical issues and we are all aware, and those are the headwinds. There are markets which are disturbed because of the Eastern Europe disturbance. So that’s also one of the restrictions. But given all that, we expect the export to remain stable.

Shubham Agarwal — InCred Capital — Analyst

Okay. Thank you, sir.

Operator

Thank you. The next question is from the line of Naushad Chaudhary from Aditya Birla AMC. Please go ahead.

Naushad Chaudhary — Aditya Birla AMC — Analyst

Yeah, hi. Thanks for the opportunity. Just wanted to understand in terms of our long-term growth journey — if I see, in last two years, from INR1,600 crore of top line, we have reached to around INR2500 crore. And from the current base to take it to INR4.500 crore or INR5,000 crores of business, what kind of steps the company would need to take in terms of new category, new geography? And how — what do you think, how long will it take to reach to those kind of numbers to us?

Rakesh Khanna — Managing Director & Chief Executive Officer

Naushad, yes you are right, we are as excited about the future growth and we have huge clients. Unfortunately, I will not be able to share all the plans with you. They remain confidential, because of the various reasons. But I can tell you, we are very excited about the journey, and we are very positive that the future is very, very good for Orient Electric. I’ll tell you a few things, which I have always said. In fans, we are not the number one and there is no reason why we should not be the best in the market, because we have the best manufacturing facility, we are the largest exporter, which means that we manufacture the best brands at the lowest cost. We have a great brand, a great heritage. We have a fantastic distribution structure and therefore our ability to grow and reach to market share is comparable to the leader, is very high. And that growth, we should go for.

In Lighting, the size of lighting industry is more than 1.5 times that of fans industry. We’re fairly small in lighting and there is a phenomenal opportunity to grow there. Switches, switchgears and other access related products, we are very small here, but it’s a fantastic market and we are giving phenomenally good traction in this area. Sppliances is very large. E-commerce is coming up at a very fast pace, and that gives us phenomenal opportunity for us to grow at a very high rate. So if I ad to look at all the growth opportunities in front of us, it is very exciting and I find no reason why we should not be reaching these numbers reasonably fast. I will not be able to give you any timelines or any numbers around it, for reasons as stated earlier.

Naushad Chaudhary — Aditya Birla AMC — Analyst

But given our existing categories, do you see a — the reaching INR4,000 crore INR5,000 crore of topline is not a difficult task for us?

Rakesh Khanna — Managing Director & Chief Executive Officer

Naushad, I gave you all the mathematics. Just put the mathematics on table and you will find that these numbers are so much achievable and that’s what makes our — the whole organization so excited about the journey ahead.

Naushad Chaudhary — Aditya Birla AMC — Analyst

Understood. Connected to this question only, qualitatively if you see your next three, four years’ a journey, do you think it can be more exciting than what you have experienced in past four, five years? Or how do you see your next three, four years in terms of your excitement for the business and growth?

Rakesh Khanna — Managing Director & Chief Executive Officer

Naushad, our last journey, a few years back, has been very exciting, because that has brought us here. Last two years, because of COVID, yes, there has been a very strong headwind. But as the COVID headwinds go away, we believe that the journey ahead will be very, very exciting.

Naushad Chaudhary — Aditya Birla AMC — Analyst

Okay. Thank you and all the best.

Rakesh Khanna — Managing Director & Chief Executive Officer

Thanks, Naushad.

Operator

Thank you. The next question is from the line of Harsh Dhanuka from Ncubate Capital Partners. Please go ahead.

Harsh Dhanuka — Ncubate Capital Partners — Analyst

Just one question in terms of the air coolers. How are you seeing the demand, and in terms of the inventory, which was a challenge in the end of January last year? Has those inventory been out? And do you see a normal year for FY ’22-’23 in terms of booking for the next year.

Rakesh Khanna — Managing Director & Chief Executive Officer

I’m hopeful, Harsh. The entire trade had actually gone into kind of a shell because after nearly two years, the sale — the summer did not happen well. But this year, as the summer continues to be promising, I expect the sentiment in the trade to return back, and the entire booking process to be good during the period July onwards, for the whole year.

Harsh Dhanuka — Ncubate Capital Partners — Analyst

Okay.

Operator

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

Rahul Gajare — Haitong Securities — Analyst

Sir, thanks for the follow-up. I also have a question connected to air cooler. Could you give us a sense on the size of the market, how a shift from organ — unorganized to organized has picked up, which are the brands, which have gained market share. And specifically, for your company, in ECD, how much is the sales of air cooler contributing? And what is your the market share in the air cooler marker? Thank you.

Rakesh Khanna — Managing Director & Chief Executive Officer

Thank,. Rahul. Very loaded. First thing, I don’t think I would want to talk about the competition, and which player is doing what in this call, but we all are aware that the cooler market is highly polarized in favor of one or two top leaders who garner a significant share. The rest of the players have not — had started their journey around three years back, but since that time, COVID has been hitting, and the entire cooler trade has not really gained traction. We expect the market to start opening up now, and given one, two good summers, the whole landscape can shift significantly in favor of the new players also. As far as we are concerned, we continue to remain hopeful. We will continue to build on coolers as a business. And this year itself, we are seeing the traction to be coming back.

In terms of unorganized, that continues to be in the range of — around 75% or so of the market remains unorganized, which also gives us an opportunity that the future for organized players is — will be good. However, a lot of work needs to be done in this particular space because it’s not easy to compete with unorganized, given their cost structure versus organized’s cost structure, and the organized players have to bring the cost down to meet that unorganized market. So, I think it has its own challenges but the opportunity is large.

Rahul Gajare — Haitong Securities — Analyst

Sir, but in INR1,800 crores, how much of…

Operator

Sorry to interrupt Mr. Gajare. Sir, may we request — hello?

Rahul Gajare — Haitong Securities — Analyst

Okay. No problem.

Operator

Thank you. The next question is from the line of Nikhil Kale from Axis Capital. Please go ahead.

Nikhil Kale — Axis Capital — Analyst

Thanks for taking my question. My question was on the fans industry. So, fans — as I understand that the unorganized market share has now reduced quite a bit. It’s getting close to 15% 20%. So, just wanted to understand that going forward — I guess, there will be some shift, but, yeah, I think the larger shift is now done. So growth — I mean there seems to be kind of intense competition amongst the existing organized players. So do you think that could maybe lead to some margin pressure in the interim? And also, would it be fair to assume that growth, going forward, would be more driven by ASP’s increase and premiumization for the larger organized players rather than say, a shift from — more of a shift from unorganized players?

Saibal Sengupta — Chief Financial Offcier

Nikhil, I’m afraid your audio was not too very clear. Can we request you to repeat your question a little bit slowly?

Nikhil Kale — Axis Capital — Analyst

Sure. My question was, we understand that the organized — unorganized market in fans is now maybe 15% to 20%. So the larger organized players now have kind of gathered quite a bit of market share. So growth going forward, would be largely driven by premiumization and ASP increases. Is that understanding, correct? And also, given that the headroom to gain market share from unorganized players has now kind of gone down, would it be fair to assume that even margins could be under pressure, given increasing competition?

Rakesh Khanna — Managing Director & Chief Executive Officer

Nikhil, good questions. First thing, the growth is not going to come at the cost of unorganized players. I think the excitement that I talked about in this stage is, that the growth will come from the consumers themselves. The reason being, the very strong shift in consumer preference, awareness and involvement in this product category. The replacement cycle, which at one time used to be 25 years or so, today, people are willing to replace the fan every time they are refurbishing the house. It is a huge shift. The kind of the growth in the decorative segment, in the BLDC segment, in the Premium segment is disproportionately high. And therefore, I believe that in the coming few years, the growth will continue to be high in fans as a segment.

Nikhil Kale — Axis Capital — Analyst

Okay, so — and on the margins?

Rakesh Khanna — Managing Director & Chief Executive Officer

And on the margins — I find no reason for margins to go down, because this particular space and the industry has always ensured that the margins for the industry across are protected. There is a competitive pressure, but it has never been at the cost of margins, and I remain very confident about all the industry — this industry. And therefore, the margins should not get hit.

Nikhil Kale — Axis Capital — Analyst

Okay. Thank you.

Operator

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for their closing comments.

Rakesh Khanna — Managing Director & Chief Executive Officer

Thank you so much. Thank you, Ambit team for organizing this, and I would like to thank all the participants for continuing to show your interest in Orient Electric. I can assure you on behalf of the entire senior leadership of Orient Electric, that we remain very, very excited and committed towards this business and we all see a very good beautiful future ahead of us. It’s a exciting space. The space is evolving very fast. It’s growing fast, and it poses great and tremendous opportunities in front of us. Thank you once again for keeping faith in us. See you next quarter. Thank you very much.

Operator

[Operator Closing Remarks]