Crompton Greaves Consumer Electricals Ltd
NSE:CROMPTON
Earnings Call Analysis
Q3-2024 Analysis
Crompton Greaves Consumer Electricals Ltd
The company, under the leadership of the new CEO, has continued its transformation journey known as 'Crompton 2.0', with the second quarter post-rollout showing promising signs. The CEO, Promeet Ghosh, underscored the success in reviving growth amid challenging market conditions, particularly highlighting the outperformance in core categories, including fans, lighting, and appliances, against their peers. This optimism reflects the company's effective response to previous challenges in some product lines and signals a possible acceleration in the business's recovery.
The company achieved robust revenue growth for the second consecutive quarter, powered by a striking 19% growth in the electrical consumer durables (ECD) segment. Notably, the lighting business, which had been under scrutiny due to previous declines, reported moderate growth, arresting the negative trend. This contrasts with the general economic backdrop, in which recovery has been uneven, with premium segments faring better. The company's efforts in innovation and strengthening its brand led to a 17% growth in standalone product revenues.
Focused on premiumization and product diversification, the company's fan business grew by 11%, showcasing particularly strong performance in domestic exhaust and table fans. Large domestic appliances also saw their highest-ever sales of storage water heaters, with strong double-digit growth indicated. The kitchen appliances segment, referred to as SDA, expanded significantly with notable value growth in large domestic appliances around 28%.
The Butterfly acquisition is a work in progress, with emphasis on rebalancing and integration for future growth. Although the brand faced recent challenges, Butterfly maintains a strong market presence in kitchen appliances and Southern India, and the company is confident in its potential. As for the integrated kitchen appliance segment within Crompton, growth is outpacing the overall appliances business, with a staggering rate above 28%. The executive team abstained from providing precise future guidance but expressed a positive outlook for Butterfly's growth trajectory.
Crompton is grappling with the dynamics of India's evolving go-to-market landscape, focusing on expanding general trade while also strengthening alternative channels, including e-commerce and rural sales. The executive team stressed that the company needs a strong presence across all channels to capture growth opportunities effectively, and they're actively engaging with the government on the upcoming ONDC platform. They also noted Crompton's brand strength beyond being value-for-money, witnessing growing appreciation in premium segments, illustrated by the successful launch of high-priced chimney products.
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Welcome to the earnings conference call of Crompton Greaves Consumer Electricals. My name is Abhijit Akella from Kotak Securities. And it's my pleasure to welcome the senior management team of Crompton Consumer who are here with us to discuss the results and business outlook. From Crompton, we have Mr. Promeet Ghosh, Managing Director and Chief Executive Officer, accompanied by his team. We'll begin the call with opening remarks by management, following which we'll open up the floor for Q&A. I'd now like to invite Mr. Promeet Ghosh to begin the proceedings of the call. Thank you, and over to you, Promeet.
Well, thank you, everyone. Can everyone hear me?
Yes, loud and clear.
Okay. Thanks. Thank you, everyone, for joining this morning. I've got with me Kalish, who's the CFO, Sriram, who runs Butterfly, Natasha and our Head of Strategy. Guys, before we dig in, I just want to remind you that this is the second quarter that I have been running the company. And we -- as you will all remember, I joined in May. In June, we rolled out what was Crompton 2.0. And practically speaking, what you're seeing is that there is 2 quarters of Crompton 2.0 at work. And what I'd love to discuss with all of you is how that's going. And insofar as I'm concerned, just a reminder of what we did at Crompton 2.0 and what that's resulting in.
So if you recall, we started with laying out the key building blocks through a renewed org structure moving into a structure where we created centers of excellence for the back end and for the front end empowering the BUs. We said we wanted to focus on reviving growth in what was otherwise a difficult demand environment, while also being clear that the growth would translate into absolute profit growth, right? We began to focus on not only innovation, but on bringing that innovation to the shops. We said we nurture the brand Crompton, and therefore, we step up our investments on A&P.
And as we look to the future, we would develop a strategic sourcing footprint for all of our businesses because we are in a business environment, which is rapidly evolving. And of course, also focus on making the company future ready in a global environment where sustainability is going to be increasingly important. Six months after driving Crompton 2.0, I have to say I'm delighted to say that in our core categories, in every category we have performed better than our peers, right? And this includes categories where we've had some difficulties in the past, as you know, some quarters ago, there was challenges in some of our businesses in pumps and lighting, et cetera.
So just so we are clear, in fans, and I'll talk about that a little bit. In pumps, in lighting, I think the envisioned emphasis was on what was a series of quarters of degrowth as well as on our appliances business, which comprises what we call large domestic appliances just geysers and coolers and also our kitchen appliances business, which we've been growing within Crompton. In each one of these categories, there has been strong growth. Having said that, Butterfly, a company that we bought recently, and I said this earlier, that remains a work in progress. We are getting our arms around that and some of that is reflecting in our results. So since our fundamental approach of strengthening, bolstering our core categories while continuing to invest in building our future in the kitchen appliances business, remains very firmly intact after these 2 quarters.
Quickly about our stand-alone performance. We delivered strong revenue growth for the second consecutive quarter led by industry-leading ECD growth, which is about 19% growth. And you can compare that with anyone else in the industry. Following what was actually also a robust growth in Q2 of 17%. The consistent investments that we promised in brand have come through. And as have our efforts to build GTM excellence as well as further build our innovation pipeline. This led to an absolute growth of about 17% on our stand-alone products.
In Lighting, something that I heard quite a bit about when I came and that's been an area of rightly so about notable degrowth in lighting. What we've done over the last 6 months is we've worked on key issues. We've taken corrective measures, including personnel changes and I'm happy to report that the lighting business this quarter very moderate growth, but it's -- we've arrested the decline, and of course, profitability in lighting continues even in that situation to be quite strong. Overall economy, we've seen what is a K-shaped recovery premium segments doing better than the others. While generally speaking, as all of you know, it is a tough economic environment, and that's what, to my mind, makes it especially interesting that in that environment the kind of growth that we're seeing is coming through. All right. Let me get into more details on the segmental performance, ECD. Now ECD, as you know, comprises several segments for us. It's fans. It's large domestic appliances, small domestic appliances and pumps, right? In ceiling fans, our emphasis on premium segment is actually paying off. In fact, our ceiling fans -- our fans business overall has grown at about, I think we disclosed it about 11%. And there have been 3 areas that I've been particularly focused on, which is premium, low mix and TPW, low mix being domestic exhaust and TPW being table fans. Each one of these segments has seen robust growth, okay.
Now insofar as our product innovations are concerned, you've seen, I think -- and I won't get into that in detail. There's a pretty robust pipeline, which has been introduced already. We have now a large BLDC presence in the market. Now coming from nothing about 2 years ago, we have a large BLDC presence. I'd argue that we are the second largest BLDC. They materially have grown -- not materially, let me say disproportionately grown our BLDC presence in the market. There was a step change from January last year when the BEE norms came in. Again, one of the discussions that we've had before is that, that translate into materially higher costs and the intense -- because of the demand environment, meaning what it was, practically speaking, nobody in the market passed on those costs.
Even in this market, we have passed on cost increases to the market, moderate, as I said earlier, but we have passed on cost increases. Having said that, it remains an area of both reducing costs as well as passing on cost increases and the benefits of those we are beginning to see in our fans business. Insofar as our LDA business is concerned, this quarter, we sold the highest number of storage water heaters that we've ever sold, about 3 lakh units. It's a business, which is showing strong double-digit growth. I don't know if we disclosed the numbers. Do we? We don't, all right, but strong double-digit growth in large domestic appliances and actually even stronger double-digit growth in our SDA, which is our kitchen appliances business, right? So both of those, whether it be on the kitchen side of the business or on the home electrical side of the business, both of them are kind of growing strong. Overall, to give you a sense, our appliances business, which is LDA plus SDA is about 24%, 25% growth last year, which can tell you how that business is doing. We are now already one of the market leaders in water heaters having come from behind a couple of years ago, right? Now in fact, some of the innovation also can keep -- you see coming through in our SDA business, our kitchen appliance. I use kitchen appliance and SDA a little bit interchangeably. So I trust that something that you can get used to. We've also introduced apart from having mixer business which is doing well, we've also introduced a 750-watt mixer, which is actually doing quite exceptionally well.
Pumps, another area which have after witnessing a series of -- some challenges in the market is now back to being pretty robust. It's 26%, 27% growth, together with strong profitability in our pumps business. And that's coming through because not only have we strengthened what our traditional area of expertise has been, which is the leadership in the residential pumps business, but we made an aggressive push into the agricultural pumps business. And I'm happy to report that we are steadily gaining share also now. And that's obviously growing even faster than the overall Pumps business is concerned.
And from a pretty low number, we are now at about 7%, 8% market share already. So together with this, we are also working -- we are working quite actively on the solar pump segment. And many of you will have tracked that we initially got an order for Haryana, which we've implemented, also got paid for. And now we've got further orders in our kitty, which will be met in the future. Okay? So the good news there is that not only is growth coming through, but profitability is strong and stronger than it has been before. So the margin improvements are actually both in appliances and pumps. Large domestic appliances, there's a value growth of about 28%. This is an incipient business that is setting up.
As you know, this is kind of business that we have been nurturing. It's grown about 40% year-on-year and on a quarterly basis now recording about INR 20 crores per quarter versus about INR 15 crores in the year before -- the quarter before. So there's sequential growth. And there's an acceleration of the sales and exclusive business outlets. This is the only business that we sell through exclusive business outlets. And part of the reason that we got into this business, not only getting into large kitchen appliances, but also to make up into exclusive business outlets, which we see as being an important go-to-market for all other premium products in the months and quarters to come.
So there's innovation coming through there. There's a second wave of products after the initial introductions, which are -- which have been introduced into the market, what we call these the wave 2 of the chimneys which are, in fact, already in the market.
Now lighting. Insofar as lighting is concerned, like I said earlier, lighting is a business in which we've stanched the degrowth that we were previously witnessing this year. In fact, I'm glad to see that it's back on the growth path. And we -- again, this is part of the discussion that we had when we started Crompton 2.0 that one of the immediate priorities are for us was to get our arms around the lighting business. And you can see a trend here. Our effort has been first get our arms around businesses, which have been facing a difficult market environment. And lighting is one, pumps is another actually even fans, you can see the way that the business has been growing, the broader business has been. That's so the F -- the focus is beginning to tell.
Lighting comprises 2 businesses. One is the institutional B2B business and the other is the B2C business. The B2C business is kind of broadly flat while the B2B business is actually back on a reasonable growth trajectory. In fact, we've secured some prestigious orders. The Mumbai coastal road, which would be commissioned in the near future. There's a Ahmedabad municipal corporation order. There's a Chennai municipal corporation order. All these are large orders, which have come through and are being implemented. We have, in fact, also created a dedicated team for large projects. So some of this is showing up in the kind of orders that we are getting and executing now.
Insofar, the B2C segment is concerned, like I said earlier, flat over last year -- broadly flat over last year. The LED business -- now you must understand that there is a CFL business that we are discontinuing. So the drop-off of the CFL business, which -- anyway, we communicated to you earlier, the drop off of the CFL business is given in the revenue comparison that we are doing over the previous year. right? So this is -- this will obviously contributed to the numbers that you're seeing.
But despite that, the business is doing what it's doing. The LED business -- LED lamps business, Lamps and Battens business, there continues to be pricing pressure. And despite that, we've kind of seen significant volume growth. In fact, if I'm not mistaken, about 5% volume growth in the LED business. Despite there being a fairly material price erosion in that segment, we continue to do quite well, both in ceiling and in new product introductions, which again, if you remember where areas that we said we were focused on.
Lighting margins continue to be very robust, very robust. So EBIT margins on Lighting improved by 1% to 11.2%. So all of the work that's been happening to revive the growth in the lighting business, we haven't taken our eyes off profitability. And as I've said before, this continues to strengthen our hands as we build up our go-to-market to be able to revive growth in the segment.
And again, just to be clear, we are responsible participants in this market. So you know that we want to grow together with them with quality and that's coming through. Butterfly performance, it's -- we have kitchen appliances that we play in 2 segments, one part of kitchen appliances embedded in long-term, the other part of kitchen appliances being in Butterfly. Now I already have told you that kitchen appliances within Crompton are doing very well. The overall appliance business growing at about 28%.
And I don't mind telling you that the Kitchen Appliances business in Crompton is doing materially better than that. So it's a business that we know how to run and our success here on the Crompton side is very heartening. We are getting our arms around Butterfly and clearing out various elements. So it's a work in progress, I'd say. There is -- there are actually a pretty clear demarcation of how Butterfly is approaching the business. There's -- there was in Butterfly a very, what we call, corporate institutional sale. Now by definition, that tends to be idiosyncratic while the core segments are in retail and in volume -- with -- supplemented with e-commerce.
Now we've focused on growing our retail, strengthening also on our e-commerce platform, while let's say, deemphasizing the institutional business, which tends to be episodic. And actually, the revenue degrowth has come from a sharp fall off in the institutional sales as a consequence. All of you -- we disclosed the results of Butterfly, some -- what -- you know what I mean a week back and all the details are there. So you can get a sense of that. Now profits have been under pressure at Butterfly, part of the reason is the revenue drop that we've seen in recent times as we build back the business.
And having said that, we have -- we don't want to compromise on advertising spends even when profitability has been under pressure because this is not something that we bought for a quarter, right? So they were stepped up advertising at Butterfly, festival promotions also, we went pretty hold out in. And there's also a minimum wage revision in Tamil Nadu where a bunch of our products are pushed. And that led to an increase in wages. Now where we are going to go from here. As you know, there isn't -- the legal merger with Butterfly isn't happening yet. But the operational integration is well on track well on track. And that means that the engagement of the sales, manufacturing, procurement with Crompton and making sure that both ways it works, or all of that is working for us on the Crompton side in terms of the sales of kitchen appliances. We are bring to bear -- or are going to particularly bring to bear in Butterfly in the future. And of course, there are -- Butterfly itself has a strong brand, bring to bear those benefits to the Crompton side. As we've spoken about in the past, power one is taking the Butterfly product to other parts of the country. That's also been rolled out to the part of Crompton 2.0. Okay. Lastly, channels, go-to market, right? I'm happy to report that frankly, both our traditional channels as well as our alternate channels have, in fact, done quite well. So we've seen growth in traditional general trade as well as strong growth in alternate channels because it's important while we grow our alternate channel, which comprises rural, e-commerce, MFIs, et cetera, while we grow that and put a lot of resources, we don't neglect the general trade, which is our life plan, which is there -- we are so much stronger than many other people in the business. And I'm delighted to say that both have been growing, right?
And it is not both growing in one segment alone. So our general trade has grown in each one of the regions, North, East, West South, what we call NEWS. And that we are combining with growth also in the alternate channels. And I think we are disclosing that our alternate channels now have seen about close to 40% growth last year -- last quarter. And that means that the overall saliency of our alternate channels today is higher. It's steadily growing higher, spot 17%, 18%. E-commerce and within that has doubled and the rest of the growth is coming from strengthening our rural channel. Lastly, a few other comments, EPR and BIS. As some of you know, the deadline for the BIS standard being implemented passed yesterday, and I'm very happy to say that these substantially, in fact, almost entirely made that by transitioning our manufacturing facilities to that standard, right? I know that's been a bit of a challenge for the industry. But we decided to get ahead of the curve, not assume that the deadlines are flexible, whatever the deadline was, we said, "Guys, we got to get it done and we did, right?
EPR is another extended producer responsibility and workers' support, do comply with that standard as well. And that's something that I think will play out, particularly not only last quarter, but also in the future for everyone in the industry. Now insofar as emphasis on sustainability is concerned, EPR, BIS, all, I think, elements of how regulations are tightening across our industry and that really helps us as the leading player because it puts -- if you can get your arms around it, then that can be a factor that is beneficial to you. So actually, a few weeks ago, as you have seen, one of our water heaters was awarded by the President of India as the most energy efficient appliance of the year. Now needless to say that kind of demonstrates to you how focused we are on energy efficiency and sustainability, you'll see some of this actually play out in some of the other segments as well.
Also happy to note that we were awarded the best managed company by Deloitte. And in particular, they focus quite a bit on how Crompton 2.0 was structured and well they -- so we got -- we received the award. Well, we will make some quick concluding remarks. We obviously created Crompton 2.0 after a several business review, which was really about streamlining competitions, combining people, focusing on the long term while ensuring that basically, here the word I'd like to use is transform and that's proceeding apace. And what else, I'd say, so far first quarter, after I came up -- after I joined some of this was at the initial stages, but some of the results are already coming through. And for the next quarter, I can see that, that's picking up pace. And I'll stop there, and we'll take questions.
Yes, indeed. Thanks, Promeet. [Operator Instructions] We have our first question from the line of Aniruddha Joshi. Yes, please go ahead with your question. Request you to please just state your organization name before you go ahead.
Yes. Aniruddha Joshi from ICICI Securities. Sir, 2 questions. One, you have mentioned under Crompton 2.0 strategy about investment in distribution a lot. Now definitely, it's required, but the now new ONDC platform is also expected to be pretty much functional in, let's say, next 1, 1.5 years. And may pick up a good space in, let's say, in next 3 years. So it will significantly change the -- in a way the distribution structure also in India. So what are Crompton's initiatives in that? And how do you see that as an opportunity or a concern or your views, per se on that? That is question number one.
And two, now we're seeing multiple new products or premium products are also getting launched on Crompton brand. Now Crompton has always stood as a very strong value for money, trustworthy kind of a brand. So it's never in a way seen as more of a fashion brand as such or a lifestyle brand as such as so. So do you believe that a new brand will be required? Or Crompton itself can take care of the fashion and lifestyle aspirations? And there is a very strong potential to drive premiumization on the Crompton brand itself? Yes, that's it from my side.
Thanks, Aniruddha. Good questions. Firstly, on ONDC, look, it's something that's coming up. It's something actually we have engaged with the government on this so that we have a good sense of how it evolved and understanding how we can participate in it in the future. Now the way that I look at it is that the go-to market in India is evolving. Now that doesn't actually mean that one particular go-to-market will atrophy and the others will become very strong, not really. What we are seeing is actually that they will come together and indeed, it is important for people to have a strong position in each element of that go-to-market, right? If you want to be successful.
So you have what we call general trade, you have already for the last several years, had e-commerce as a new go-to-market. But interestingly, for some of our products, what we are finding is that out of 7, 8 people who look at a product on e-commerce, 6, 7 of them actually go and buy it on the general trade, right? It's also the cost structures of some of these newer channels is high, right? So if you don't have a mix of these channels, then it is going to be difficult for people to make money, right?
And therefore, you see us growing both general trade as well as alternate channels. And by the way, alternate channels is not just e-commerce, it's also rural, penetrating deep into the market, getting to the nooks and crannies of the country because your products are recognized there and sell there. So long story, but you will see even some of the newer age companies today coming up and saying, no, no, we are trying to get into general trade because we're going to have a perk of it. So you need to have all of these and we are obviously in a strong position of having a very great mix now even that will, of course, evolve in the future, including with ONDC.
Now to the point that you're making about Crompton being a trusted brand. Absolutely, Crompton is a trusted brand. But you know what, I won't characterize it only as a value-for-money brand because what we are seeing in product after product is that there, the consumer recognizes the Crompton brand, appreciates the Crompton brand for a range of products. So to give you a sense, our premiums in fans, we have been steadily growing our share of premium fans. Even today, it's actually lower than what it should be, but we've been steadily growing. And it's about whatever, 26%, 28% already after steadily -- and that's not just ceiling fan. That is a share of all of our fans, including non-ceiling fans. What that tells you is that the consumer has faith in the Crompton brand.
We are today selling chimneys, which cost INR 20,000. One of the products is INR 30,000, right? So you can see that there's appreciation. Yes, we need to continue to build the premium aspects of the Crompton brand, but it itself is quite strong. And by the way, actually, one of the things I must tell you is that when we recently did a study again also of the Butterfly brand. And interestingly, keeping the business performance in the recent quarter aside, that stronger, that brand is very strong as well. And we are in the process. So I hope that answers your question.
Yes, yes. Sir, this is very, very helpful. Just lastly, on Butterfly at the time of acquisition, it was expected to be earning accretive in almost Tier 1 itself. But now obviously, the situation has been a bit different. So you want to guide or give you guidance anything for FY '25 or FY '26 for Butterfly? Yes, that's it.
Aniruddha, we don't provide common guidance, as you know. From an overall business perspective, we called out that Butterfly is a work in progress, more in terms of how do we get our channel balanced right. And we do believe this is a couple of quarters away prior to which we get the entire thing right and we start seeing business coming back to the desired level that we wanted to be. But having said that, the core channels of Butterfly which is trade and e-commerce continues to do well for us. Our entire new product launches is contributing significantly to our overall revenue. All those things are pretty much intact. It is this allied nonstrategic channels is something that we are working upon, like corporate, et cetera, how do we rebalance that and get the business to the right level of growth and profitability.
Look, all I can tell you Aniruddha is that Butterfly is a strong brand in kitchen appliances, very strong brand in kitchen appliances, a very strong brand in the South. Now kitchen appliance is a business that we've just entered in Crompton. We don't compete by the way. But it's a business that we've entered in Crompton 3 years ago. Again, but we don't disclose the exact size of that business, it is a material business to our overall sales, right? And that is a business which is growing like I told you earlier, faster than 26%, 27%, which our appliances business is growing, maybe even materially faster than that.
So again, we believe that bringing all of those -- that's one of the reasons that we bought Butterfly. It's taking longer than we anticipated, but we do believe that it will show in the performance of Butterfly in the quarters to come and realize what the potential of that brand is. It's not something that we -- as we said, we don't give a forward guidance.
We move on to our next question, which is from the line of Mr. Rahul Gajare. Rahul, please go ahead and request you to please state your organization name before asking your question.
My name is Rahul Gajare from Haitong. So I just have one question. You talked about very strong growth in the pumps business, which are mainly sold through channel partners. Can you help break up the growth into residential and agri. And if I'm not wrong, agri could account from 20%, 25% of the total pumps, which is a very price-sensitive market. Also, if you can clarify if there is a particular geography or product like Crest Mini, which did well for the company to get that kind of a growth. And during the commentary, you also talked about rural picking up, while we were getting mixed commentary in terms of pickup on the rural side. So need to talk about that also.
Maybe I'll just take a quick start. Rahul, you're right. Firstly, your estimation of the size of the agri sales in our portfolio is broadly -- while I can't break out the growth numbers between agri and residential, I want to tell you that both of them have grown, right? In fact, the overall growth in pumps is about 28%, 30%, right? So you can tell that you could kind of run your math from there. And insofar as our channel mix is concerned, again, that channel mix is not a particular channel becoming much more salient. In fact, in this segment as well as in all our other segments, rural and general trade have grown. So it's -- the growth is not disproportionately coming from any one segment. Anything you want to add?
That's it for me.
It's not like some -- one segment is kind of -- so it's a pretty well distributed growth.
Okay. So it's not that residential was significantly higher?
No, it's not.
Residential wasn't significantly higher. Residential was lower because it's a much larger base. But both of them are growing.
The next question we have is from the line of Siddhartha Bera. Siddhartha, please go ahead and request you to state your firm's name before asking your question.
This is Siddhartha from Nomura. Sir, first question is on the ECD portfolio now. We have seen good growth in the past 2 quarters. Obviously, part of it is benefiting also because of a low base in the past. So going ahead, how are you looking at the segment wise...
What low base, boss? What low base -- how did you come to low base, now. Let him finish the question. Sorry. About what...
I just wanted to understand, I mean, how sustainable are the sort of growth momentum in the coming quarters because we will enter into a peak summer season, and it's generally sort of good seasonally strong quarter for us. So I just wanted to understand are some of these growth trends sustainable in the coming quarters? Or do you expect some change here like on the Fans category if I talk about?
So far as low base is concerned, I don't know where you're getting that from. But because if you recall, last year, 31st December was the BEE transition, and there was a race across the industry to make sure that whatever non-BEE fan you had, you sold. So this thing about low base side, we are little careful about using Siddhartha and so we've got good growth last quarter. We've got good growth this quarter. And it's obviously very differentiated from the rest of the industry. Look, I don't want to procrastinate about how the growth will be next quarter, right? But what I can tell you is that we are putting -- we are building the -- we are strengthening the essentials of the business, putting in place the building blocks, which is kind of showing up, I think, in the performance of the company. And look, from my perspective, the whether for us, for everybody, the industry is overall consumer growth isn't very strong. But because we are doing what we are, I'm pretty optimistic about how -- where we'll come.
In fact, many of you had this question that is there a low base and probably you guys are coming back on a BEE rating. I would like to clarify a few things to all of us around the same page on this. Please note, our ECD growth of 19% is broad-based. It's not fans only. Fans has grown at 11%, whereas pumps, large domestic appliances led by geysers, coolers and small domestic appliances have grown significantly ahead of 20 percentage, and that's why it is delivering the ECD growth.
Now it's equally important to note within fans also, the BEE change was applicable for non-star rated fans, which is your value segment largely. Our growth of 11% in Fan is driven by categories like BLDC, which we have significantly upped our ante and got the investments going behind it and categories like table, pedestal and wall fans.
So there is -- it has got nothing to do with the low base effect. It's a broad-based growth across segments. And within Fans also, there was no impact of BEE ratings having any role to play on having a low base growth that needs to come in from.
Got it, sir. Sir, second question is on the profitability.
Siddhartha, I'm really sorry about this, but I'm afraid you pissed off. We'll have to request you to come back in the queue. Sorry about that. We'll have to take the next question from the line of Akshen Thakkar. Akshen, you could unmute yourself and go ahead with the question, please request you to please just state your firm name first.
Akshen, we can't hear you.
Abhijit, maybe you can move to the next question?
Okay. Akshen, I'm afraid we are not able to hear your line. So we'll request you to just come back in the queue maybe. The next question we have is on the line of Pulkit Patni. Pulkit, please unmute yourself. And please just state your firm name first.
I'm Pulkit from Goldman Sachs. My question is primarily on Butterfly. While multiple time on the call, you said that we are trying to fix things. Can you please explain what exactly is going wrong there? I mean, you also said the brand is positioned very well. So is the product positioning not right? Is the channel not working the way it used to work under the previous owner. I mean if you could just explain, one, what exactly is the problem? Because as somebody else also highlighted, we are talking about breakeven in the first year. Here, we are actually losing money on this one. On top of that, what are you doing to fix things and then some direction on when we are likely to look at better numbers for this particular business?
Pulkit, thanks for raising that. I think allow me to give a little bit detailed answer on this and how are we looking at it. See, when we acquired Butterfly, now it's about, say, 1.5 years, 2 years since we have acquired the business and it was during the COVID period. And as we all know, there was a COVID fill-in that happened in kitchen. And kitchen as a category is not something that is doing to the extent that we would like it to operate today on a pan-India basis, and this is reflected in soft results for this full year across all the company players in the industry. That's at a very high level.
Having said that, from our perspective, the way we are looking at in Butterfly is 1, it's a high operating leverage business, which means that the revenue mix, it needs to have -- needs to be at a minimum threshold for us to drive a steady 7%, 8% EBITDA growth, which is what we wanted to strive for in that. Now there are a few channels that we need to cost correct and we need to ensure that our business model is not dependent on that.
And why is it important to cost correct and what are these channels? The brand is present in channels like corporate, which is largely towards end consumer gifting. And it is also in institutional government businesses. Now in the long term, we are not in butterfly business for 1 quarter, 2 quarter. We see this as a business for the next 5, 10 years. If we have to make this a pan-India brand and beyond South, the brand has to have its own position and has to have its stake towards a lifestyle experience-oriented category.
And to ensure that we move in that direction, it is important that, first, we rebalance the channel strategy. We started with the business largely being a Flipkart led-e-commerce, price-led channel moving towards a broad-based Flipkart plus Amazon brand-led engagement, that is almost done and it is completed. The second phase of activity that we have to take it out to ensure that the corporate business and the government oil marketing company businesses has to be balanced so that we don't have ups and downs of business model when we need to make this a larger brand and not a value for money brand and have a lifestyle brand that it is associated for.
The channel correction is something which is underway. We do think it's about a couple of quarters away for us to complete this in full. From the overall business synergy perspective, we are also now, from a cost perspective, many of the work that we have to integrate with Butterfly on administrative costs have already started and is giving results. We are also looking at how do we synergize Butterfly's manufacturing facilities for Crompton products and how do we get that operating leverage, reduce the high operating leverage model that Butterfly operates.
Revenue synergies with Crompton has also started to work. We are piloting in a few markets in North to start with to see how do we leverage the Crompton's distribution and get Butterfly's product placed, which is why if you look at it, just to quantify it in numbers, so that easy for you to look at it, we have lost about INR 35 crores of corporate sales business, which is about, say, 5% of EBITDA for this brand. And this is a yoyoing business, and you can't predict when it will come and when it will not because it's not something intrinsic direct consumer driven. So that's something that we're going away with. Then we have gone ahead and invested behind the brand and people considering slowly, we want to move this brand beyond South and start to work towards it.
So overall, fundamentally, as we said earlier, the brand is strong. The brand has got a strong resonance with the consumer. We do believe it has got a potential to go beyond Tamil Nadu South and become a Pan-India brand. But it means that there is work that needs to be done. It cannot be a value price-led brand, which needs to be on a deal-based business every month and every quarter. Like how we did this in Crompton, I think we started on a journey in Crompton and 2 quarters down the line, we do believe the journey is providing results to us and the strategy is working for all -- working well for us. It's a similar approach that we are taking in Butterfly also. We do believe 2 quarters down the line, we should start seeing directionally moving in the right place for Butterfly too.
Look, I'll just give you a little bit of context here. Even in lighting, right and in pumps -- lets take lighting. What we did is -- and it's very much work in progress, guys. It's very much work in progress. So let's not go away with that. But what we did is we strengthened the go-to-market and we strengthened the senior team, right? We are exactly in the process of doing those things at Butterfly. The senior team at Butterfly is being strengthened. The go-to-market at Butterfly is being strengthened, right? There I say, materially strengthened with operational integration between the companies, but we materially stepped up.
So some of this was going to happen with the legal integration that for whatever reason did happen. But going forward, things that -- this is not stuff that now you should know, we are unused to [ fringe ]. So obviously business after business, this is what we are doing. And it's at an earlier stage in Butterfly, but it will come with through. Much larger businesses actually than Butterfly. Yes.
We move on to our next question, which is from the line of Saumil Mehta. Saumil will request you to please mute your line and go ahead with your question. Please just state your firm's name first.
This is Saumil Mehta from Kotak Life Insurance. My question is continuing from the previous one, no doubt, Butterfly is a strong brand. But the competition is also heating up in that space, some Bajaj has entered into that space. Your South -- one of the largest player in South has also entered into that space over the last 12 months. Now we understand changing distribution and better product offerings. But from the next 24 months perspective, what would be the KPIs we need to evaluate specific to -- from a marketing perspective and we are sure that the journey is on the right track? I mean can you give us some specific targets, which you have for Butterfly, which we can evaluate and just to ensure that the journey is on the right track?
Saumil, 2 quarters ago or 3 quarters ago, we had a similar conversation with -- or 5 quarters ago, we had a similar conversation about new people entering our pumps business. We had a similar conversation about other businesses. Today, we had a similar conversation about people entering our fans business, no? Competition is the way of life, right? So in consumer durables, there are no entry barriers. There are only sustainability barriers, right? People can enter. It's not easy for people to sustain and continue to do well. The secrets of doing well in the consumer business are very simple. They have -- do you have a strong brand? Do you have the operational scale, which arises from being a leader in the business?
Now you know the strength of the Crompton brand. You know the strength of the Butterfly brand. Just so we are clear together between Crompton and Butterfly, we are the second largest kitchen appliances company in the country, right? So that can give you a sense of the scale. Now the requirements of about how we are going to do in the business are simple. What's the sales mix? How is the sales mix going to work?
Are you -- is that sales mix coming from what are sustainable long-term go-to-market fundamentals, namely retail, namely, also e-commerce because that's a material part of our -- of the overall market. How much of that is coming from there? Is that growing? Is that getting expanded? And secondly, other than that is the revenue growth coming through? Is the profit growth coming through? Is the profit margin being restored? Those are simple things here. Nothing complicated to Sriram. Boss, you do that -- you know, you put the fundamental building blocks in place, the rest will fall in place.
Saumil, I hope that answers your questions. We can move on to the next question, which is from the line of Mr. Achal Lohade. Achal, please unmute yourself and go ahead. Please just state your firm's name first.
This is Achal from JM Financial. Sir, 2 quick questions. One is the market share. If you could just give us a broad sense about the market share in absolute or a change over the last, let's say, 2 years or 4 years. How is it that changed for fans, pumps and lighting, if you could?
Look, I don't want to do that because there are no really trustworthy numbers that we find. I mean, clearly, you've seen the growth of the rest of the players in the market, right? So we are clearly gaining share, right? In fans, in pumps, in kitchen appliances and in geysers. But I don't know if there are any numbers you want to share. But I do want to be clear that some of these numbers, we don't always go by internally. But for whatever it's...
As Promeet said it's coming from the fact that it's not that this industry has got something like a Nielsen which gives you the share. But even other ways if we go by what's available on stable, we are gaining share in fans. We are gaining share in pumps. Fans in fact, for the last 3 quarters, we have been gaining share and the share gain is led by premium fans. Pumps is led by degrowth that we are seeing in our residential and in agricultural pumps. Geysers, we have now become our top 3 player. And within e-commerce, we are the #1 player in e-commerce and where we have gained our market share. Lighting, we are holding the share. I think we do believe there's an opportunity for us to expand, particularly on the ceiling segment, which is something that we should see it happen in the coming quarters.
So I mean, I don't know, maybe we've kind of gained -- according to these, we've gained a couple of points of share in fans and I think we are estimating to have a market share of about 26%, 27%. We -- according to these numbers, we've gained a couple of percentage points. In our own view, we've gained more as you can actually see from publicly disclosed numbers, but you kind of make up your mind guys. And like we said, our fans -- in fans, our premium has been growing and our TPW and our [ domex ] has been growing, all of them growing faster than the market and in double-digit numbers -- double-digit percentage term. Sorry, but that's all I can give you because we don't have any better numbers to do. Again, in pumps as you can tell, if you grow 28% means you've grown in both.
We'll move on to our next question, which is from the line of Rahul Agarwal. Rahul, please unmute yourself and go ahead and please just state your firm's name.
Am I audible?
Yes, Rahul, go ahead.
This is Rahul Agarwal from InCred Equities. So the question essentially the summation of whatever we just discussed over the last 1 hour. Under Crompton 2.0, it looks like things have changed in terms of the strategy of growing faster than the industry. That is a clear cut intention and an achievement. I think fan pumps, appliance and lighting, we can see that. Similarly, on the margins, the strategy is to invest more and invest into brand and hiring talent, stuff like that. And hence, there is some kind of operating deleverage here because in spite of building up top line, our margins are still lower than what Crompton stand-alone is known for pre-COVID levels.
So question essentially is over the next 3 years. and it's more like a conclusion to what we just discussed. Across these 4 categories and more is more on Crompton stand-alone, we have discussed enough on Butterfly. Fans, pumps, appliances, lighting, next 3 years, what will be the growth rate in terms of what the management will be happy with? Obviously, you've mentioned that you will do faster than the industry, we understand because we're aware of the category growth here, right, the fans category, stuff like that, volumes are pretty low here, right? So that is one. And the second question related to...
What are the pretty...
Growth.
Volume growth in the industry is low you're saying.
Yes. I'm saying like the category growth for lighting, fans. It's low.
Yes.
And combined with the fact that margins obviously are still lower than pre-COVID Crompton stand-alone. Is this a structural low we are seeing? Or will again go back to 12%, 13% over the next 3 years? That's my only question.
You want to talk that to -- I'll just maybe assist here. But I think what we've been telling you is that we will grow top line, right? And we will be also focused on absolute growth of our profits -- material absolute growth of our profits, right? That doesn't mean that we'll be cavalier about our margins as you can see across segments now, but our focus is on growing the platforms and continuing to invest in those things which are going to bolster future growth, right? So despite the fact that there are -- the challenges that there are in the market, we have not shied away from increasing our A&P spend by 30% because that may go into my cost structure today, but it will build the strength of the brand, which will come through as growth tomorrow, right? So we are doing those things which build the fundamentals -- which strengthen the fundamentals of the business. Now Kalish, what do you want to say about...
So Rahul, I think fundamentally, let's start with -- in Crompton 2.0 which has been launched, we want to be an organization that is growth focused and absolute profit led and which is where we said we started a 10% EBITDA margin and then see how do we move forward from there. Now let me take ECD as a platform, and I want to view a comparison of where did we land in last quarter, Q3 of last year and where are we today in Q3, right? At overall level, you look at a margin in ECD, which is roughly lower by about, say, 350 basis points compared to the previous year. Now of this 80 percentage or 85 percentage of this driven by marketing spends, which is largely the investment that we have done behind the brands, about INR 35 crores incrementally have been spent over last year in this quarter towards -- across all the categories, let it be fans, geysers or pumps for that matter.
Now as we move forward, we do believe our revenue growth will be in double digits as a portfolio, and that should help us to fund some of these investments that we wanted to look at. And we also believe there are cost opportunities that are still untapped. We are very, very good in our direct cost program, which is giving us good results over a period of time, and we'll continue that. We do believe there is opportunity in indirect cost reduction that has started to give us where should we go and correct the indirect cost. We've already identified those areas.
And as we look at the next year onwards, we should be able to start seeing benefits of that also. This coupled also with the fact that in a category like fan, we still believe there is room for us to improve the gross margins. We have taken about 3 price increases, including what we did yesterday and considering the BEE cost increase that has happened, we still believe there is headroom for us to improve the gross margin in fans. So in a combination of all these things, along with the growth and where we stand, we do see operating leverage will also kick in as the business starts to scale up in the next 2 to 3 year beyond the EBITDA margin than where we are today.
In fact, in the last 2 weeks, we've taken further price increases.
Yes.
In more than one business, more than one large business - actually okay, let me put this way, we've taken price increases in fans and pumps.
Right. I get it. I get it. But the point is because you're growing top line, your EBIT, obviously, Y-o-Y 9 months is lower than what we were making last year. The point is, from an ROC perspective, is that accretive, the strategy is accretive or decretive? That's what I'm trying to understand.
Rahul, some of these things, you need to see what's the lead indicator and a lag indicator. If you look at it, there were 2 choices that you had, you be a brand which is into a mass category and where you talked about initially the category growth itself was not there and then try to do a price game, which could become a vicious cycle. We are not here for quarterly profits as we discussed. We are looking at next 3 years, 5 years, 10 years how do we need to operate. In that set of a context, the amount that you're spending behind the brand today is definitely helping us to premiumize the portfolio. Once we premiumize the portfolio, the throughput will naturally go up across all the channels, let it be in traditional trade or in alternate channels, that's when you will start seeing the operating leverage also play out as we scale up the business in the coming quarters and years.
So you don't have a choice, right? When we all know that the economy is moving towards a K-shaped recovery, you can't blame the economy and do what you're doing. You need to be nimble footed, you need to be agile and move towards what the consumer and market is demanding. Our change in strategy is more to amplify that. And we do believe it's paying the right results, and we are not here for a quarterly ROCE. We look at in next 3 years, we believe there is umpteen value in this business and probably it has been under achieved to the strength that it has. We wanted to ensure that we maximize that as we look forward. That calls for upfront investment. And as any business, you would always do that. You don't shy away from that.
I agree with you. I mean, obviously, a core element of it is operating leverage coming into play. That's fundamental to all of this, and we can already see that happen. I mean to be clear, for instance, in pumps, how do you grow margins as well as strong top line? How do you grow -- the same thing is happening across in other businesses of ours as well.
We'll take the next question from the line of Shrinidhi Karlekar. Please unmute yourself and please just state your firm's name.
This is Shrinidhi from HSBC. Sir, I wanted to know Butterfly's current business mix by channel? And where do you want to take it as a culmination of your channel balance, rebalancing exercise? That's the first question.
It's there in the this thing know, it's there in the press release -- yes.
So we'll give it in the Butterfly press release, Shrinidhi. Maybe you can connect with Natasha later, she'll be able to help you all with this to how are we remapping this.
I mean Butterfly is a listed company, and full disclosures are made there.
Right the second one, sir...
Yes. But to give you a sense, the institution and corporate business, which is about 15%.
I would say e-com is around 30% and institutional 45% to 50% is between trade, which is when -- in retail, we call chain stores plus the distribution plus an MOR, modern retail we call this. Overall retail will be around close to 50% and balance is your CSD, exports, oil channel, and institutions.
So it's about 20% institutional, 30% plus 50% very broadly. And the principal reason why you're seeing kind of this follow-up is while retail and e-commerce have grown over last year, there has been a very sharp fall in the institutional. In fact, a 70% plus degrowth, like I said, that's kind of a business that is very episodic. Sometimes, it will come, sometimes it will not come. And we're not going to bank on that as a core area going forward. So that's why you see the kind of degrowth that you've seen in butterfly. But other than that, both retail, which is GT, general trade and e-commerce group.
And second, sir, on the gross margin in the Butterfly portfolio. With this rebalancing and channel mix, one would have expected improvement in gross margin, but there we see sequential decline in gross margins. So would it be possible to throw some color on that, please?
Yes, yes. So a few things happening here. One, insofar as Butterfly is concerned, there is an operating leverage at play here, right? So if the volumes have come off, then the reverse of the operating leverage. And when the volumes come back, then you'll have the -- exactly the reverse come into play.
Because 90% in-house manufacturing.
Right? So that's kind of what come into play. And therefore, the numbers that we look at Butterfly, we should just be a little bit careful in analyzing those numbers in absolute terms. So if you see a bulk of -- this is because of gross margin erosion, which comes from operating leverage, right? But it's very sensitive. It's very sensitive. So 1 quarter, if the numbers come down then the margins will sharply correct in the next quarter when the growth wherever -- short point is that with growth, this number will sharply vary. So -- and this is perhaps a point that people should just keep in mind when they are looking at the numbers.
We'll take the last question of today from the line of Indrajit Agarwal. Please unmute yourself and please do state your firm's name first.
Indrajit Agarwal for CLSA. I have one question on your manufacturing strategy. If you can state how your in-sourcing would change over the next 2, 3 years, Butterfly is 90% in-house. So how that is going to change and also for the other businesses, let's say, fans, lights, pumps, what is the mix now? And how do you think that will change in the next 2 to 3 years?
Yes. Good question, Indrajit. By the way, this is something that we talked about when -- that part -- integral part of Crompton 2.0, and there's been progress that's being made. At the right time we've disclosed to you the fullest element of how some of this is being done, not yet. But Butterfly let me give you an example, which is -- since it's separately called on. As we discussed earlier, Butterfly is a very high operating leverage company, right? And that operating leverage comes out of the fact that 90% -- 80%, 90%.
82%, 85%.
So let's say 85%, 85% of the manufacturing is done in-house, right. Now in 1 quarter when the volumes come up, that has a disproportionate impact on the profit. But what we are doing today is, like I said earlier, we have a large kitchen appliances business called SDA within Crompton. So in order -- the entire manufacturing of our kitchen appliances business in Crompton is outsourced entirely, right? So what we're doing currently is working on moving the manufacturing from vendors to Butterfly, particularly of our -- some of our products, right? Sorry -- to start with the mix of grinder.
So you will therefore see some of the effects of the operating leverage of Butterfly getting significantly addressed. But also us being able to make -- obviously help improve margins because we are in sourcing, right? Now to give you a sense of the other businesses, currently, about 50% of our -- I'm giving you broad numbers because, bear with me, we don't disclose everything. But in Fans, about 50% of our manufacturing is in-house, and balance is outsourced, right. Now in fans, we are in the process of significantly stepping up the in-house manufacturing of fans, right?
Because currently, our manufacturing facilities operate at pretty low capacity utilization. We have 2 -- 3 actually, 2 of them in Goa, Bethora and Kundaim next to each other, really one unit and one unit in Baddi. So our effort is to do more internally. It's a process that we've started now maybe 12 months ago, but it's a process that we are accelerating. So you will see more outsourcing. Insofar as lighting is concerned, again, we have 2 manufacturing facilities, one at Baddi and one at Baroda. There also, what we are doing is a mix actually, our own manufacturing, we are trying to go up the value curve. In some of the more commodity products will actually outsource because you want to do what's best for the organization there. Very approximately, I'd say, about 40%, 50% is in-house and the rest is outsourced.
So depending on which category of product, you'll see more insourcing and outsourcing, particularly in some of the more value-added products where we want to control the entire value chain, we'll manufacture in-house. And again, our Baroda facility is underutilized. Insofar as pumps is concerned, we have one facility at Ahmedabad -- Ahmednagar, sorry at Ahmednagar and again, we have been stepping up our in-housing of pumps, and you will see more of that happening.
What I'm not getting into in greater detail is there is a strategic overlay to all of this. It's not just producing more internally. It's also producing more of what is important internally and owning critical parts of the value chain. So that's also in progress. And frankly, we see that being a big differentiator in the month -- in the years and quarters to come because in each one of our businesses, being able to own the design, being able to come up with a next generation of product, particularly products which are more energy efficient, more sustainable is going to be critical. Does that answer your question?
I'm afraid he's not in the queue anymore to deal. I have to take that as the last question for the day. And I'd like to turn the call back over to. Mr. Promeet Ghosh for any closing remarks if you would like to.
Well, I -- so I think I pretty much made all the points that I'm -- that I want to set out to -- the messages I want to quickly leave with is that -- what you see is Crompton 2.0 in action and delivering -- beginning to deliver the results that we were hoping for Crompton. Butterfly is work in progress. Perhaps the gyrations on Butterfly are a little bit accentuated because it's a very, very high operating leverage business.
But I have a great faith that with the changes that we are making there and with the experience of having delivered and continuing to deliver on the kitchen appliance business as well, it's something that we'll get our arms around in the future. You want to make any point?
One last point. I think fundamentally, Crompton 2.0 is paying rich dividends for us. And I also wanted to reiterate here that Crompton stand-alone, it's not that we are delivering industry-leading growth only. We continue to be industry leading on margin also. It's very, very important to note that in spite of investments being made behind business, and if you look at the margin erosion that has happened in the industry in the last 1 year, it has been due to largely the price and cost challenges for the competitors whereas for us, it is largely due to investments made behind the brands and transcend categories that we operate, which we expect to pay dividends beyond the current quarter and years to come. So we continue to drive revenue and profitability. Thank you.
And guys, every time we do better than the industry, either someone say, low base. Hopefully, as we consistently deliver over quarters, people will get about over with that.
Okay. Thank you. I'd like to thank the management team for joining in, and thanks to all the participants for making time for us.