Crompton Greaves Consumer Electricals Ltd
NSE:CROMPTON
Earnings Call Analysis
Q1-2024 Analysis
Crompton Greaves Consumer Electricals Ltd
The company's financials depicted a steady state with revenue from operations standing flat year-over-year at INR 1,877 crores. Despite the absence of growth, operational performance was underpinned by a robust cash flow, signaling efficient working capital management. With a negative working capital operation, the company's cash reserves grew from INR 657 crores as of March 2023 to INR 783 crores. Material margins came in at 30.8%, impacted by regulatory costs in fans and price adjustments in pumps, but offset by improvements in Lighting and Appliances segments. The EBIT margin was marked at approximately 10% due to increased advertising and promotion spending, while PAT margins maintained the status quo at 6.5%.
The kitchen segment, which is now amalgamated with Crompton's small domestic appliances business, is projected to be a significant growth driver moving forward. Additionally, actions are taken to boost the lighting segment showing promise, driven by cost optimization efforts and process improvements enhancing competitiveness and potentially heralding growth. Entering new markets is on the horizon, with plans to venture into 2 to 3 new broad areas where the company could establish leadership.
The company is focused on fortifying its core product categories through innovation, with an innovation center staffed by 160 people. Expansion into new segments is on the cards, aligning with strategic manufacturing and supply chain development. While near-term industry challenges persist, Crompton is committed to strengthening its competitive position, and is confident in its fundamental business strengths and growth trajectory.
Cost increases noted in material margins are largely attributed to regulatory changes, notably BEE costs in fans. The company plans to factor these increases fully into product pricing by Q2 and Q3, which is expected to help restore margins over time. In pumps, the focus is on premiumization and brand architecture enhancements to elevate gross margins. Overall, these measures demonstrate a structural approach to margin recovery.
Crompton's strategy encompasses investments in brand and innovation to stimulate long-term growth. Although these initiatives may impact short-term margins, they are seen as integral to achieving a market-led business model and maintaining industrial competitiveness. Investments in product categories like ceiling solutions, along with marketing and personnel for brand expansion, such as Butterfly, are key elements of this approach. This forward-thinking tactic underscores a commitment to growth that transcends short-term fluctuations.
You don't have any saved screeners yet
Good morning all. Ladies and gentlemen, welcome to the Crompton Greaves Consumer Q4 -- Q1 Earnings Call. Sir, can we start the call?
Yes, please. Sure.
Sure. Welcome, everyone, to the Crompton consumer Q1 con call. From the Crompton management today, we have Mr. Shantanu Khosla, Executive Vice Chairman; Mr. Promeet Ghosh, Managing Director and Chief Executive Officer; Mr. Kaleeswaran Arunachalam, Chief Financial Officer; and Mr. Yeshwant Rege. Sir, I would request Mr. Promeet Ghosh to give us some opening remarks and take us through the presentation, post which we will open the floor for a Q&A session. Over to you, sir.
Yes. Thanks, Kunal. Firstly, thanks to [indiscernible] securities for hosting this and about the people that you mentioned, Kunal, also [indiscernible]. Everyone who is on the call this morning are welcome. We are attending this time to have a different format for our quarterly earnings call. Hopefully, you people are making a perspective on [indiscernible]. I will presently take you through an update and the presentation of the company's performance in the past quarter. Okay. Starting with the first page, what you have, is Energion Rover smart fan, which is one of products, which we are very proud of, it's quite remarkable [indiscernible] of the kind of efforts that we are making to premiumize our portfolio. Let's go to the next page. And before we start also, we were the largest or the largest BLDC grounds-up portfolio, again, indicative what the kind of efforts that we'll be making market [indiscernible]. Importantly, while we can see a very broad way of BLDC fans, note that this is largely a grounds-up BLDC portfolio rather than simply inverting an existing portfolio of clients to be received and [indiscernible], this is a segment that results in exceptional focus and that's what we brought to the stage. Yes, let's now getting into next slide. About a month ago we posted presentation. We can get to the next stage of the presentation. Yes, we posted a presentation on website called now the organization empowered Crompton 2.0 [indiscernible] we also talked a little bit through that presentation. So I'm not going to repeat what we've [indiscernible] just to call out on the highlights. Firstly, obviously, we've had a very strong position in [indiscernible] on fans. We made the successful foray into the kitchen. We [indiscernible] revealed innovation capability. And for us on the market which is extensive across the country. We're also focused on being profitability led. Now what we're going to do differently in Crompton 2.0. Firstly, being absolute profit led, now with margin led. And we have as the key driver of growth, innovation and our premiumization with changes to both the front way as well as backbone of ensuring that we are able to deliver on those 2 keys. Now firstly -- and this is something that you -- again, we were well aware of a new management structure is with an empowered leadership structure. The leadership team [indiscernible]. All right. So I'm going to speak up a little bit so that [indiscernible] to you, but like I said, our restructured organization is already basically in this about 2 months ago, significantly the organization restructuring made that we have industry veterans and the front-end people who are being here in Crompton for years and years. As of the back end, we have a whole bundle of domain experts, who now come in and significantly bolstered that area. And guys, if you still can't hear me -- if you want, I'll move up a little bit closer.
Sir, there is still a slight bit of crack in your voice. So I think you can try moving closer to the mic or we can take switching off the video.
Is it better now?
Yes, it's much better, sir.
All right. So that -- so we've got another [indiscernible] leadership team fully in place. But with empowered organization also comes accountability, and I think that is at the core of how we see this entire team driving and transforming Crompton into one, rightful position to deliver growth-oriented organization and strong case okay? So let's go to the next page. A quick update on some of the key steps on Crompton point of view that have since been initiated. One, we continued our premiumization journey. We saw a strong growth in the premium ceiling fans category, saliency of premium fans since improved to about 28%. There the new brand architecture in pumps, which we've talked about in the past, particularly in the [indiscernible] segment and we have rolled out our new brand architecture, while we have our largest selling [indiscernible], we also have premium pumps that we are selling and will improve premiumization in the beginning. In the kitchen side one, our focus has been to have a differentiated portfolio with superior at the industry-first features based on extensive consumer research for inside, for instance, we introduced chimney but significantly reduced sound decibel levels and the super slim hobs to consumers, so that we do not have to cut their slab. Now it's about its go-to-market specialization. I am briefly touching on that so that we can somehow can get into major details later. But we're briefly -- we have been focusing considerably on building out our alternate channel. So we're starting to be very strong in what's called gentle trade. But we've also put out our emphasis on alternate channels, materially contributing to growth going forward and that has grown 32%. As you can see our alternate channels include E-commerce [indiscernible], et cetera. Now particularly E-commerce, for instance, is consistently growing. And in the Q1, we were at about 44%. We've also been working on expanding our reach in small domestic appliances, also called kitchen appliances as well as our B2C likely, particularly in Lighting, we have significantly expanded our reach by adding several new distributors in markets with the addition of more [indiscernible]. We have also built upon our [indiscernible] channel and our E-commerce like using new products for a significant match. For small domestic appliances, the infrastructure we set up is nearly complete, particularly in the North and the South. Again, we added [indiscernible] and appointed FOS. Together all of this, we've been working on the visibility leading to retail transformation. Brand investment, we spoke of this quite a bit. And that, as we transform the company to be demand growth led investing in the brand that we intend to do. So you can see significantly stepped up A&P spends, which is gone up to about 4.2%. We're likely to be seeing this [indiscernible] levels, because we see this as having the huge impact on the outbreak of our performance in the much quarters ahead. I will talk a little bit about this later, some of the marketing categories being rolled out. And these have all high share of voice for our product. And so far as innovation is concerned, we have introduced new products and that I already mentioned that we have only the largest range of BLDC, particularly one of which have been bit down. I think we [indiscernible] in the box category, and we launched new variants in our water heaters range and particularly especially focused on E-commerce. For a quick update on Butterfly, I'll provide overview here, and we can discuss this in detail again later. But in that particular, we have, as you already know, we will be strategic in orientation of our channel mix by emphasizing retail border trade and optimizing the E-commerce by derisking the corporate and non-core channels. In Butterfly, our core channels are now performing great. We have -- we are in the process of merging Butterfly with Hawkins and we have the opportunity to start realizing global market synergy of our cost synergies and the global market synergies will improve Butterfly to reach particularly initially and I think the best [indiscernible]. And this is called Power of One -- and we see this in a bit of the next few quarters. We've expanded our portfolio to get brand investments. Also with Butterfly, where entry levels are in 5.4% and launched several above the line and a bit of activities. We've expanded our portfolio to cooking and food processing and cookware range. And finally, in so far as our integration is concerned, that's under way, and we expect just to get a big trade by the end of this financial year. You'll probably -- we have involved [indiscernible] that we have now received approval from both PFC and BSC, which have enabled us to go ahead with the filing [indiscernible] for the merger, right. Broadly, I'd say we do not [indiscernible] the macro environment over the last quarter, continue to be relatively challenging but we've worked relentlessly to get strong results despite driving inflation, leading to few consumer sentimental, general overall softness in demand. Unseasonal rains did not particularly have [indiscernible] 3 changes further adding to the volatile demand environment, which impacted [indiscernible]. With inflation at 4.8% in June '23, the overall consumer [indiscernible] consumer durable segment has so far been soft. These pressures impacted the overall margin, but the efforts on premiumization, mix improvement and cost optimization have partly offset the impact. After a slow down in April and May 2023, the demand however seems to be picking up from June and we hope that trend will continue in the months to come. Going forward, we expect [indiscernible] contribution as we positioned and improved, hopefully, it improved conditions over the next half of the year. Now next, specifically getting on with quarter. Yes. I will leave it. I will not read out what we're saying in the presentation that we had, but just we followed a few of the highlights. So the ECD revenue grew by 6% despite a challenging environment, particularly strengthened by a strong growth in our appliances segments. For the actions that we took on our Lighting portfolio, helped improve our volumes by just 300 basis points. We believe that this has bolstered our Lightings fit for growth position as we have over this period focused on the changes in our go-to-market structure. In Butterfly, as I mentioned, we focused towards retail and modern retail channel by E-commerce. But it's important to note that we significantly stepped up into [indiscernible], which will try investing in our brand, which we expect to be out in the future. And I have -- as I said, the organization structure is in place, new build up kitchen -- kitchen appliances business is so far shaping up well. It is part and that we're obviously investing materially in this business so far, but we have so far fair indications on this. Next is consolidated financials. And you must have seen this already [indiscernible] but ECD margins notably include several -- EBIT loss at kitchen appliances business is currently incurring and we see that is a bit less for the future. On the lighting segment, EBIT margin improved [Technical Difficulty] and that is despite the [indiscernible]. And this does almost trend above greatest cost initiatives. The Butterfly segment, where we'll talk about in a short period. Now on the ECD segment, fans [indiscernible] volume value growth about 5%. Q1 saw strong momentum in ceiling fans and [indiscernible] fans. There are 5% growth on the Fans category was there I think which is of premium segment, which I've spoken about already as well as strong growth on EBITDA. Another segment that we focused on that I mentioned earlier is the BLDC segment, which grew 80-plus percent in the last quarter. And quite remarkable, got 3 lakh plus, and very proudly speaking, BLDC fans we sold in the last quarter. Media campaigns on star rated fans and ActivBLDC have resulted in good momentum and high share of voice, we've collaborated with the digital influencers who drive discoverability and [indiscernible]. Going forward, we plan on [indiscernible] aperitif offerings at the were, and we recently announced [indiscernible] smart [indiscernible] fan energy savings. That you said it I think let's just say we got to a [indiscernible] BLDC fans so far. Okay. Apart from BLDC fans, like I said, the [indiscernible] group segment is also growing quite well. Next coming to pumps. [indiscernible] segment this year -- this quarter, we continue [indiscernible] to bring our pumps business back on track. We rolled out [indiscernible] program for the [indiscernible] segment to indicate essentially leveraging based on faster actually as well as greater durability and that has helped contribute to a sharp differentiation from [indiscernible] product, which earlier making some headway, I think no longer are. We have also under strategic actions to ensure that the price premium is at the level, which the consumer is willing to pay for. The pumps, managing of growth, which we are excited is relatively flat [indiscernible] some weakness in the North with some increased competitive intensity. While in the Eastern region, which is the other large [indiscernible] for us is getting that on track. And we are currently working on significantly strengthening our market. And we are also simultaneously seeing promising silence of growth in our agri segment. All right. Okay. Appliances back to strong growth in this category -- as you know, we spoke about this earlier and this is also a segment that we've actually [indiscernible] one being the large domestic appliances, the other has small domestic appliances, LDA and SDA. Our references to these segments that you're going to see going forward, this is obviously did not particularly -- in fact the last quarter started to see for operational structures. But importantly, the small domestic appliances, particularly mixer grinder grew at 15% plus, while the water heaters and the air coolers business grew about 11%. The large domestic appliance is [indiscernible] segment for us. Okay. Then infrastructure setup is new introduction and they've been in [indiscernible], which is particularly to draw in the small domestic appliances market. Our media campaigns for air coolers was well received and they resulted in 5 share of voice, particularly in [indiscernible], which we did meet criteria and instant water heaters with [indiscernible]. In kitchen appliances [indiscernible]. Significant effort from me to develop the channel. There are cumulatively 24 brand stores which combines signature stores as well as exclusive stores, which now have [indiscernible] and have been opened across 23 clusters and reach is now in 260 [indiscernible]. Regeneration campaign and performance marketing generation product to [indiscernible] we continued to invest in building the business, but [indiscernible] capabilities as a indicator of this as I said earlier, this business is currently gaining the process of INR 7 crores in the last quarter. In Lighting, we struggled in the past from many initiatives that we are in to turn around the lighting business is that the lighting B2C sales has been out. It's a part of the overall sales organization that we have and now specifically falls into lighting B2C sales head who falls in directly into the lighting business unit head. We believe that, that's a clear carving out and focus at the sales level will help our go-to-market in Lighting. So far with other elements of our GTM restructuring are concerned, we are strengthening our dealer network with range addition, and we will be expanding and driving our outdoor range in lighting. We are also driving premiumization, you maybe aware, we introduced a premium range of products and that property will further be developed in this quarter with a with more launches in that segment. We've also launched innovative [indiscernible] and have entered new categories like room lighting [indiscernible], et cetera, all with the objective of broadening our offering to the market. [indiscernible] So B2C is a mark, that is also mark unique to us, and I think you must see the results and that is also something that impacted other industry players. And this is because of a combination of [indiscernible] and increase competitiveness. Further pricing reductions, particularly in the bulbs and battery ranges, volumes because it leads to a lower channel stocking. Next slide 14, Butterfly. Butterfly reported this performance earlier, but I'll quickly take you through the highlights of this. Revenue was at INR 219 crores, which is down 14%. We improved double-digit growth in the B2C channels but while we didn't [indiscernible] the overall network was about almost 14% [indiscernible] 42% with an expansion of 65 basis points year-on-year, significant improvement in material margins, general and MOR improvement in retail mix, operating [indiscernible] and cost optimization. The company continued its efforts towards building capabilities across functions, such as sales, [indiscernible] operations and R&D. And the 9% EBITDA margin that you see is also the investments for the marketing as well as capabilities. We are continuing our efforts in building [indiscernible] from strengthening processing mix and compliance faced as a result [indiscernible] and safety related performance. Marketing campaigns, that's next page. This is a glimpse of various marketing campaigns that we rolled out. I will not get you through of that. [indiscernible] aware of. But we idea essentially is that we are investing both in demand generation [indiscernible] care activities as well as by strengthening of go-to-market in previous areas [indiscernible] like loans, cities we open that these will into that off as is the [indiscernible] 4.5% versus the 3% that the [indiscernible] quarter 1 in FY '23 that's about 1.5% higher. All right. We can get into consolidated financial performance. Kaleeswaran, you can talk through this later in greater detail, but I'll just read the high points. Revenue growth from operations stood at INR 1,877 crores, remaining flat Y-O-Y. ECD growth more than 6% soft, demand from Lighting and Butterfly. Material margins at 30.8%, was mostly due to higher BEE costs in fans and some price corrections in pumps. This was positively offset by improvement in margins in lighting and appliances as well as rebound in trade for Butterfly. EBIT margin was about 10% on account of higher A&P spends. PAT margin remained flat at 6.5%. We continue to operate on negative working capital and have generated robust cash flows from operations. Consolidated cash and can [indiscernible] at the end of the quarter was INR 783 crores. This compares with INR 657 crores that we had as of 31st of March 2023. Finally -- that's to distract you from the stage. I hope you don't get distracted too much. All right. So finally, key positive development in the organization as we look to the future is to accelerate growth, have healthy margins and develop and deliver [indiscernible] shareholders, right. So as we become more growth-oriented organization, I believe the stand that we are taking at our [indiscernible] the various elements that you've already seen. But lead through value creation for our stakeholders, we will protect and grow our core categories of fans, large domestic appliances and pumps. And the [indiscernible] in the kitchen segment. The kitchen segment now comprises the small domestic appliances business of Crompton as well as [indiscernible]. And we expect that to be a key driver of growth going forward. So we have identified fruits in Lighting and as I said, the improvement on the cost trend that we've been able to do in Lighting gives us the confidence that Lighting business is becoming good for growth as we focus on the GTM and various process enhancements to be able to leverage this cost position. The way I think about the step change towards Crompton 2.0 is first to strengthen and consolidate the backbone of our organization, which begins with creating a center of innovation that intensively led by consumer needs that are -- we got about 160 people at our innovation center that literally, we have 1 more actually R&D center in Butterfly as well as and a significant amount of money and investment going into that, but some of which -- the benefits of which you've already seen, but it's still early days yet in kind of benefit in the innovation to help us drive. Okay? We will foray into new segments, and expect to enter about maybe 2 to 3 wide space in the next [indiscernible]. And that effectively will be areas that we believe we have a right in areas that we can become leaders [indiscernible] Okay. At the same time, we are also developing strategic long-term manufacturing and supply chain footprints, which will support and enable any [indiscernible] ambitions. In conclusion, I'd say although we are structurally stronger today, regard we have been in the mix of our graph [indiscernible] environment with the industry facing some near-term challenges as the broader consumer sentiment, we still got. Therefore, while the journey of Crompton H1 [indiscernible] is expected to bump to be a bit bumpy. We can expect that the situation will continue to improve, and we see some [indiscernible] towards the end of this fiscal to work tirelessly to strengthen our competitive position and simultaneously identify the user growth, which I need to reassure you about, but no initiative will be until as we go along. And finally, I'm confident of strong fundamentals in the underlying business and my belief in the future growth trajectory remains strong. Thank you for the patient listening. And now we will open the Q&A [indiscernible].
[Operator Instructions] So the first question is from Aniruddha Joshi, ICICI. Anirudh, you're not audible.
Is it audible now?
Yes, it is audible.
Yes. Sir, two questions. One, we have said the gross margins have got impacted due to some of the higher -- some of the issues in pumps and the higher BEE costs in fans. So do we consider this as onetime, or these are in a way structural in nature? And so the gross margins are likely to remain lower than what we had seen it in earlier quarters? So that is question number one. How much is structural and how much is onetime impact? And how should we look at margins ahead?
Second question is on EBITDA margin. So we have raised the A&P and I can see in the presentation that we are aiming at a higher SOV for many products. So what is the SOM target that we are looking at, maybe 50 bps margin market share expansion each year or maybe 100 bps expansion in market share? So can you please quantify on that? So basically, what is the ROI that we are looking on the additional investment in expense? Yes, that's it from my side.
Yes. So first, to start with, as an organization, we would believe market share is an outcome of various actives that we do. It's not that we want to chase our particular market share and see where we land to do it. But investing in main consumables, having innovative products to take to market, which will drive the revenue growth and in turn, will lead to a market share.
So it's not that we are chasing a particular number as a market share. It's more about the actions that we want to invest [indiscernible]. Coming back to your other questions in terms of gross margin and EBIT, where do we stand? Starting with gross margin, first and foremost, Butterfly and lighting business have come -- in both the business segments that we have seen gross margin expanding, led by cost initiatives on both the categories. Having said that, in fan, the BEE cost is going to be baked into pricing in full. And I think as we go into Q2 and Q3, there are opportunities accompanying cases that presenting in front of us to take those price increases, which will help us to restore the margin as we move forward.
Secondly, on pumps, it is more in terms of where do we see the competitive intensity at this point of time. We have started with the brand architecture. The brand architecture has helped us [indiscernible] pumps and get into a growth pace. We are also seeing some of our early decisions on agri is starting to give us good green shoots. We need to see what is that sustain as we move forward. But overall, as the brand architecture expands, the premiumization of pumps will also help us to get the gross margin back. So that's why we are looking at gross margin in a structural way as we look at the forward quarters. Coming into EBIT, this is a [ countdown ] strategy where we clearly said that we are going to invest behind our brands, and which means that would entitle into [indiscernible] bps increase on a year-to-year basis on a marketing expense. And we think this is something that we will continue to do, and [indiscernible] that will be more in terms of the revenue growth that we want to deliver rather than a specific marketing quarterly rate otherwise. Overall, as Promeet said earlier, as an organization, we are now moving towards profit-led [indiscernible] profitability-led.
I'd just add a few more things to share [indiscernible]. If your question was about structural changes, the cost structure has gone up because of BEE. Another -- the interesting thing is that all the participants in the market, obviously, are impacted by this. Because of the somewhat weak economic environment, I don't think any of [ the stranger ] been able to pass that [indiscernible] in the quarters to come [indiscernible]. So -- and that would bolster our margins going forward and so forth. What's the other point we made?
[indiscernible].
Yes, so far as the advertising investment is concerned, I think there's an effort to step that up as we are going to be growth there. Now on the EBIT level, we are hoping that some of the cost synergies will also start [indiscernible] efforts that we're making. But obviously, they can't be synchronized, but that's something that, again, will give us some more [indiscernible].
We have the next question from Siddhartha Bera, Nomura.
Sir, my first question is on the fan side. So you have indicated a 5% value growth in the quarter. What will be the secondary growth in the quarter in the fans category? And also if you can share the overall growth for pumps and overall appliances in the quarter?
Upon pumps, we delivered a flat growth in terms of the total quarter is concerned. Appliances is close to 19% growth is what we have delivered. Fans, at this point of time, we have to look at a BEE-rated secondary impact that we saw in the industry. Our stock was significantly lower to where the industry was concerned in terms of non-rated fans. We would assume our primary and secondary to be in track.
Got it. And if I look at again on the EBIT margins for the ECD segment, I mean, sequentially, we have seen quite a reasonable correction -- contraction on the margins. So are you planning to take any price [indiscernible] last part is because of the BEE, as you have indicated now -- how is the visibility on pricing by when do you think you can maybe go back to that 15%, 16% margins, which you used to report and how soon that can be -- can it be if you can just share some thoughts there.
Siddharth, I think fundamentally, this is like what we wanted to call it as [indiscernible] where we want the organization to be growth [indiscernible], right? Now there are 2 levers when you're talking about this EBIT. One is what is the kind of price increase or cost reduction that you need to do to improve gross margin? And second is where to invest? It was always easy to cut those 200 bps in terms of the marketing spend and get into a business that will have a 14%, 15%, 16% EBIT as compared to a business that has a sustainable revenue growth, which we think will create value.
So allow us not to comment on EBIT target or a margin expansion at this point of time, we would like -- we would be believed that as the revenue growth is probably paramount to us as we speak. Structurally, where would we go to address your first question, we think on the gross margin, that is probably we are moving towards a compelling case of a price increase.
Now this is not something that you tend to calendarize it because it's a market where you have multiple players in, and you need to be competitive to the industry. So as we move forward, the case is much more stronger to where we were in Q4 or Q1. So there would be price implementation that we will make in case of fans. Now when you do that, then we also talk about premiumization of fans as a portfolio, mix is also going to be an enabler for us to drive our gross margin. A combination of price increases, mix optimization moving towards premiumization and continuing to invest behind brand, we think will expand our assets into profits and therefore, deliver EPS growth in the long run.
We have the next question from Rahul Gajare, Haitong.
I have a couple. Hello. Are you able to hear me?
Yes. You're audible.
I have a couple of questions now. I think you just mentioned that I think a mix -- product mix is what will ultimately add profitability. I want to understand, could you discuss what is the share of premium fans in the total fans? And how that has moved in the recent past? And also do you maintain a similar metrics for -- at company level across product category? What is it that you classify as premium and the share of that? Because I understand the growth has been impacted at the lower end of the product compared to the higher end of the products. So that's one thing I want to understand from you all on the premium side.
Yes. So from a fans' perspective, if you look at it, our portfolio used to be about, say, somewhere around in late teens as a share of premium. Today, as we speak, 1/4 of our fans business comes from premium segment. And this is aided by multiple launches that has been made, both in induction and in the BLDC segment.
And as we talked about our BLDC strategy has [ been ] to build a [indiscernible] portfolio, and that's what we have -- helped us to probably expand the range, keeping the consumer needs in mind. So this 1/4 of the portfolio has significant headroom to improve as we move forward, which will help us to improve the overall earnings as we look forward. Now if you look at categories outside fans, probably a big lighting as an example, and I'll leave it at that. Lighting, if you look at it, one way of premiumizing is looking at the same category and see what more you can do in bulbs and battens. The other opportunity is also look at things like ceiling, which probably has got a unique [indiscernible], which is significantly higher than bulbs and battens, and it has got a margin profile also which is much more stronger as compared to bulbs and battens.
So how do we expand our ceiling range? Today, our ceiling portfolio is about 1/3 as compared to industry, which we would presume is about, say, 45% to 50%. And that overall will also a period of time [indiscernible] to premiumize the lighting portfolio and helps us to improve the margins. Shantanu, anything [indiscernible]?
No. But very clearly as Promeet said, there is a strong review focus on premiumization across all our categories, and that includes also Butterfly, where premiumization within the segments we play, pressure cookers, gas stoves and mixers is a clear opportunity, which the Butterfly team had been introducing initiatives for. For example, recently, the Butterfly team introduced [indiscernible] healthier cooking, less oil pressure cooker as a premium.
And in terms of the enablers Promeet talked about, which we have strengthened the back end and the entire supply chain operation, our innovation operation [indiscernible] expertise and center of excellence upgrading to us, all are going to have this common focus of driving us strategic drives of accelerating premiumization.
We have the next question from Ravi from Spark Avendus.
My question is kind of an extension to the previous participant's question with respect to the kind of more towards the BLDC side. So how do you see the BLDC as a market panning out? What might be the industry average of BLDC out of the total current sales that is happening and how we are [indiscernible]? What is our share of BLDC? And what's the kind of profitability of BLDC fans given the fact that apart from the conventional players who are there, there are also a few new players who are there in the space like Atomberg, et cetera. So if you can give you a thought process on it over a 2- to 3-year period, it will be great.
Look, what I will say is that BLDC is a technology which has some advantages [indiscernible]. As we look forward, we see both the BLDC and induction be a part of the kind of fans that are sold in the future. So [indiscernible] going away. And so far as our approach to BLDC is concerned, as you've already seen, we have made significant investments in building out our BLDC range. What difference is that we have bring out the BLDC range particularly as a native BLDC, right?
So this is a little bit like EVs in terms of combustion engines, right? You'll have cars which have been retrofitted with EV technology and there are cars which will be ground up with on the basis of EV technology. We feel that for the consumer to truly get the benefit of that technology, we have to [indiscernible]. And while the other may give you some shorter-term [indiscernible] over a period of time, [indiscernible] go to products, right? And so look, it's an interesting technology, and you will see us do more and more in that area. We have one of the [indiscernible] in that segment already, but we are just getting started.
Got it. And my second question is with respect to the white spaces that you had mentioned in the presentation that you would like to get into? I mean kind of logically speaking, there are 1 or 2 sizable segments where you can easily get into and grab share. That is the switchgear market, switches market, where you can kind of strengthen your [indiscernible].
You already have a very strong presence in reach and distribution where you can get into. And then there is the cable segment, which is kind of capital-intensive and probably you may try and avoid. So your thought process on getting into these segments or some other segment, if you can?
[indiscernible] that process, obviously we can't talk about [ specific ] segments. There are multiple segments, which will have opportunity, which we evaluated, in fact they have different levels of progress and different [ ideas ]. When we are able to talk about it, you will all be the first to know. The only thing I have mentioned since you mentioned that, yes, given our infrastructure, there are a lot of segments, which have easy to get into. Our focus is not just to get into a segment, but our focus is going to be to get into a segment in which we can win, and that is not easy. [indiscernible] so far as the direction of the [indiscernible]. We need to separate vertical or new business initiatives, which is specifically going to be looking at on these areas. So clearly, there is a fair amount of work that is going on to evaluate the various segments.
[Operator Instructions] The next question is from Latika Chopra, JPMorgan.
[Technical Difficulty]
Latika, your line is not clear.
[Technical Difficulty]
Still lot of disturbances. Can you move to that...?
You may want to [indiscernible].
Yes. I'll move to the next question. Thank you, Latika. We have the next question from Aditya Bhartia, Investec. Aditya?
[indiscernible] move to the next question?
Yes, sure. We have the next question from Renu Baid, IIFL.
Renu, you're on mute.
I think all the questions have been answered.
Hello. Am I audible?
Yes, Renu.
I have one key question around the margins and profitability [indiscernible]. If you look at 12.7% kind of ECD margins, there have been all-time lows, say about 50, 60 basis point impact coming in from the large kitchen appliances. So can you help us understand, while there has been comments given, can you broadly help us bridge the gap from this 13.2%, 13.3% margins to a normalized 17% EBIT margins that you were doing? And in line with the strategies that we have highlighted in terms of focusing more on growth or investing in marketing team, how should we readjust the expectations for EBIT for the ECD segment, given the mix and the end market responses, which have been there?
So first and foremost, Renu, I was not to give a forward guidance of what we are looking at in terms of EBIT. But we talked about how are we able to look at growth drivers for the business and how are we going to expand our margin.
Coming specifically to the bridge that you are seeking in terms of our Havells revenue, roughly about 50 bps on account of large kitchen appliances, [indiscernible] about 150 bps is on account of the higher marketing spend that we have done, and another 150 bps is on account of the gross margin drop that we have seen in ECD. Now this drop is largely [indiscernible] on account of what we talked on fans, BEE pricing challenges that we had, which I think as we move into Q2, Q3, we would be taking few price increases at appropriate time. Over a period of time, coupled with the mix and price, we should be able to get back to the gross margins where we were in ECD and coming specifically on EBIT, I think our higher investments should [indiscernible] into revenue growth for us, which will help us to expand absolute EBIT rather than EBIT margin. And there's a structural change that we need to make. Eventually, we believe value creation for all stakeholders will be through EPS expansion rather than looking at a 17% EBIT margin. Now as we [indiscernible] grow the business and operating leverage kicks in and we reach there, we do reach there. There's no constraint of capital that we're putting on this number. But right now, we want to grow the revenue for the business. And towards that, if it takes investments [indiscernible], we are committed to make those investments.
Got it. If I can ask on Butterfly?
See, on Butterfly, the good news is we have expanded margins out there. This is largely on account of two things, Shantanu talked about premiumization. We have seen this in across categories. For example, the steel cookers have started to pick up as compared to aluminum so that's one profitable sign. We are seeing that in cooktops, we have seen that in mixer grinders.
This coupled with the cost initiatives that we have taken what we have in Crompton, the project [indiscernible] extended to Butterfly has also helped us to drive gross margin improvements out there. There also considering our learning out here, we would not be curbing on investments behind brand. So already Butterfly is starting at about, say, 5, 5.5 percentage on A&P spends.
We would only try to keep that at the same level or increase as we try to grow. Now the most important lever for Butterfly is the power of one that we talked about, while Butterfly is a strong brand in South led by Tamil Nadu. We believe there are strengths that Crompton can provide to Butterfly and make it a pan-India brand over a period of time. And this is driving on the distribution leverage that Crompton has got. We are starting with new pilot markets in Northern India and in Western India, couple of markets is what we're starting with. Once we establish that, we think that can expand the growth opportunities for Butterfly beyond where it is today. And the channel optimization is largely done in terms of e-commerce and retail. We have seen good strong double-digit growth in retail. And in terms of noncore channel also, we are clearly derisking. So if you look at it pre-acquisition, Butterfly was largely a government e-commerce-led business delivering about 5% to 7% EBITDA.
Today, we have rationalized it to become a 25% e-commerce business and trying business through retail along with e-commerce. We've also on the process of rationalizing the large part is completed in terms of noncore channels and now will be time to invest behind that brand and take it nationally.
We have the next question from Achal Lohade, JM Financial.
If you could help us understand in FY '23, what has been the mix in terms of fans, pumps, water heaters and air coolers? Why I'm asking this is given the different challenges we are facing in different segments, if we can understand how the revenue mix and what kind of margins we've had in FY '23, I think that would be of great help.
[indiscernible] share the data at a category level margin or category level share. But what I can give you is a broad perspective, we are [indiscernible] ECD, a large part of our portfolio comes through fans, followed by pumps and probably in about say a year or 2, we will see our appliances business also reaching there. So it's fast growing in appliances led by [indiscernible] water heaters and geysers.
Is it possible to get some similar -- in the similar fashion the margin? Like is it the case that pumps is highest margin compared to fans or other way round?
ECD is about the same.
Yes. Our platform margin for ECD at the category level is almost the same. Apart from, of course, the large kitchen appliances...
Yes, it's [indiscernible], yes.
Understood. And just one more. You said about investment in kitchen appliances, the amount was about INR 7 crores in 1Q FY '24. Is it possible to get some sense about 4Q spend as well? What kind of investment was there?
And how do you see it from a full year or next couple of year perspective? Could this be a big drag for the next couple of years in terms of margins? And then we see a breakeven and then improvement from here on?
Again, we don't give forward guidance. But the way we would look at it is, this is one of the fastest-growing category within kitchen. This is largely about INR 5,000 crores, INR 6,000 crores in terms of [indiscernible] growing at about, say, 10% is what we have seen.
Now we have started [indiscernible] through a signature store route and [indiscernible] B2C. Now we are expanding it beyond the [indiscernible]. We are getting into alternate channels beyond EBOs, which is [indiscernible] e-commerce led, and modern trade is also starting to contribute in a significant manner.
This would continue to have revenue scale up over a period of time, and it will have losses that we need to take as we look at the current financial year. But as these losses are more [indiscernible] behind the brand, both in terms of people and in terms of marketing, we think there is a fair amount of opportunity for us to gain in this segment, considering our overall strategy of where we want to win in kitchen. And from a [ long-term ] perspective, this is one of our growth vector.
And obviously, as we made the choice to enter this category strategically for the future, our objectives and our goals were such that this would be value in terms of the company if we look at it over the period of long term.
Many of the investments and capabilities maintained in the segment [indiscernible].
Understood. Great, that's helpful. Just one clarification with respect to -- in one of the comments you mentioned that agri is where you're seeing further scale up. There is change in the brand architecture. You've launched agri pumps. Would agri be more competitive in terms of pricing and margins compared to the domestic pumps? And the mix, as we speak, is 70%, 80% domestic pumps. I just wanted to have some clarity over there.
Yes. That's true that the large share of the pumps segment continues to be residential, which you can also call domestic. Agri is the business which is stepping up and growing well. That doesn't mean that we are reemphasizing the other one. And the brand architecture, by the way, is on the residential side, particularly on the segment that we call [ Mini ]. So yes, we expect to get growth momentum -- to continue our growth momentum, I believe, but obviously continue to strengthen our core residential.
Sorry, the agri margin -- agri pumps margin would be lower than the pumps' current margins? Would that be fair?
Sub segment-wise, [indiscernible]. Apologies, yes.
The important thing from our point of view for agri is we are market leader [indiscernible] in residential markets. We are still a relatively small player in agri. Therefore, [indiscernible] agri is a growth opportunity for us. Now of course, to begin to actualize that growth, it is not a single variable. It's a multiple variables. We have been doing that part of what has been the growth driver filling in gaps in our agri portfolio, which is obviously different from the domestic.
There is also a long-term trend of solar in that particular segment. There are go-to-market differences in terms of the channel. So it's an entire program, which we're now beginning to see some traction now as we build on it, but it's a clear big growth opportunity for us.
We have the next question from Rahul Agarwal, Incred.
Can you hear me?
Yes, Rahul. You're audible.
Sir, just I have one question but across your 3 segments, and this is largely going to revolve around outlook for the year. It looks like ECD, fans has grown 5%, pumps flat, appliances 19%, and appliances license is about 20% of ECD. So should we really expect fiscal '24 to have early double-digit revenue growth on ECD? Lighting has declined above first quarter. Obviously, you're working on new products and expanding reach for B2C. How long would this take? And again, the same question that do we see growth in fiscal '24 or not? And similar question on Butterfly, we also declined Y-o-Y even on revenue in first quarter there as well. What should we expect for full year? So whatever you can share it would be really helpful.
Sure, Rahul. As much as we emphasized, we would not be giving forward guidance. But we look at what are the tenants that we are driving towards and how are we trying to make the automation move forward. The first and foremost, we'll tart with lighting. I think lighting, the objective is to make the business fit for growth. So when we say fit for growth, we always talk about, we need to have a business model that is going to be market-led, which means that there are categories that we need to expand like ceiling. We also need to be industrially competitive in categories like bulbs and battens.
Now this would mean that you have strong gross margins, which will help us, one, to take appropriate price actions in categories like bulbs and battens. At the same point of time, we have enough money to invest behind ceilings towards Prime and other initiatives that we have to do. Now where are we today as we speak, I think we have got our gross margins in the right trajectory for lighting. Now we need to get our product strategy right, and also data competitive price actions completed. In parallel, we wanted a go-to-market strategy for lighting that is different from how do we deal with ECD.
So the deal is in place. We are rolling [ that ] out. Coupled with this, lighting is not going to be a story of 1, 2 quarters where we are trying to look at a turnaround, et cetera. We are moving in the right direction, our early signs are pretty positive. As we look at end of this year, we wanted to see how the lighting business transform from where we stand here and move towards a growth trajectory.
As soon as Butterfly is concerned, you have to look at Butterfly in 3 facets. There is the retail channel, there is e-commerce and there is noncore. Intrinsically, if you look at the business, as we discussed earlier, it was e-commerce [ bid, ] which meant the brand was more playing a price warrior [ deal ] in multiple channels, which had a [indiscernible] interest both in trade and e-commerce. The correction that we have to take in e-commerce has been completed. Now we are not only making Butterfly a Flipkart-oriented e-commerce business. It is now in Flipkart. It is in Amazon. And as we look at it, it will have its spread in multiple other digital [indiscernible] And the portfolio is reasonably optimized, and it's well poised for growth in e-commerce as we look at H2 onwards.
In terms of noncore channels are concerned, Butterfly as we talked about, evolved as a brand over a period of time, starting from a business that was into government orders led, corporate led, et cetera. Now all the corporate channels are also getting [indiscernible] we focus on the core business, and which will help us to invest behind brand. Now in that, as we do these 2 things, we have already seen a strong double-digit growth in terms of our retail channel for Butterfly, and we would expect that to continue. With the improvement that we have made in material margin for Butterfly, that has given us the opportunity to invest behind Butterfly. Now this investment is not only going to be on brand. We need to invest behind people also.
And that would mean that as we expand into [ outside south], we need to take people on board and help them -- help Butterfly make a national brand over a period of time. Now this is, again, a business that we need to have a long-term strategy. We as an organization here for long term and not for a quarter or 2 and that means we should not be shying away from taking those costs and making those investments for business.
So Butterfly [indiscernible] therefore, is pretty well poised in terms of how it is going to pan out in the coming years. And the directions are in the right place. Coming back to ECD, the 3 segments that we talked about, as far as fans is concerned, there is an opportunity for premiumization. We talked about the range that we have got in BLDC. And premiumization does not need this. Only BLDC gives a price point at which we can take the consumers to upgrade by having decorative offerings and making fan more part of your lifestyle experience than something that can do on [indiscernible] delivery.
So [indiscernible] work is going behind renovation, which is consumer led, we are seeing the results of it already. We are a top 2 player in BLDC segment already with almost a lakh fans being sold per month in the BLDC category itself. So as we move forward, we think that is a significant growth lever for us. But as much as we see, I think we are India's largest player in terms of the economy segment where we play in fans also. And there is enough headroom to grow in that segment in many other places and many parts of India, where we have the percentage of market share to our overall market share what we have today. Brand architecture is one lever that we have been talking about, which has help us to drive. Agri is something that we want to focus. We are an 85%, 90% residential-led category. Over a period of time, we want to grow agri and residential together and see where do we land. And importantly, appliances has given us enormous amount of success in the last 3 years. And this is something, as you could see is probably a start in steel appliances, particularly the small domestic appliances category growth that we are seeing is more an initiative that we started in north and south. We are in the East and West market available with us. We have e-commerce as a channel that is [indiscernible] because it's prone towards e-commerce. So there are enough opportunities available within the appliances space for us also to grow. So not looking at the near-term growth target or where FY '24 will lead to...
in the long term, we can -- in terms of -- the way we look at our top line objective and this is the long-term, midterm is we always want to grow our categories faster than the [ market ]. Said another way, we always want to aspire to have programs [indiscernible] for all our ECD sub-segments and for the broader kitchen appliances. We think we have the opportunities and programs, which will enable us to do that.
In fact, as we mentioned, the early signs indicate that they're doing that. I think, as [ Kalees ] mentioned, we still have a couple of things to sort out and what we believe is sorting them out. So probably, there's a little more time to get on this track of growing faster than market or pricing.
Ladies and gentlemen, that was the last question since we have run out of time. I would like to thank the management of Crompton Consumer for taking time out and giving us this opportunity and also giving us a detailed presentation and patiently answering all the questions. Thank you so much, sir. Any closing remarks that you would like to make, sir?
No, thank you very much for joining us. We'll keep in touch. And in case you have any other questions, please free to reach out to Natasha, and we will keep chatting in the future.
Thank you. Thank you so much, sir.
[indiscernible].
Thank you. This concludes the call.
Thank you.