© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
[Audio Gap]
Good morning, everyone. We hope everyone is staying safe. You would have reviewed the results by now. Revenue for the quarter grew in mid-teens, while volumes were flat, owing to a strong base and moderation in demand in later part of the quarter. Festive demand was encouraging, using the opportunity, we increased the spend on brand promotions, which we expect to continue. Overall contribution margins were sequentially maintained, high commodity cost [Audio Gap] We will now proceed to Q&A.
[Operator Instructions] The first question is from the line of Rahul Agarwal from InCred Capital.
My first question was essentially because this COVID wave 3 in late December, early Jan, the price hikes to take that in third quarter again would have been difficult. Could you explain as what are your thoughts? Has supply actually already happened in January or we are still lined up for that? And what could be the range to cover the margins up here?
So the price hikes are generally were not timed along with the December, January because the expected season is anyway February, March, April. So there are price hikes which have already announced in the market, and hopefully, that should start taking effect from February and March when the season starts kicking in. And this will be gradual increase because of the fact that ultimately, it has to be absorbed not only by the trade but also by the consumers. So it will be a gradual increase over the next 2 or 3 months. However, I must say here that the raw materials are continuing to show some volatility even in this quarter, starting from the second half of December. So there is -- it's difficult to exactly say how much will be the requirement for the price increases, but there will be a gradual price increase in the coming months.
Got it, sir. And my last question was on Lloyd. So congratulations for the washing machine unit you've started commissioning in third quarter. How is that ramping up? And the commentary in the press release mentioned that there is very high competition in large appliances. Could you help with some color in terms of demand supply and how that [indiscernible].
Thank you. Well, I think 1 quarter is difficult to say, but if we see Lloyd's performance in the last couple of years, CAGR has been impressive. Last year, there was a high base in the third quarter because of the import ban on air conditioners from China. And so the trade had picked up extra stocks during the third quarter. We do believe that this year, the demand scenario should remain strong because the season should start coming in now. Last couple of years have been rate up for the summer products like air conditioners, fans and all. So last 2 or 3 quarters are not the seasonal product. So the real demand scenario will be known in the coming months. And we do believe that not only with the COVID scare not being there as well as the pent-up demand in the last couple of years, there should be a strong demand in the coming season.
The next question is from the line of Sonali Salgaonkar from Jefferies India.
My first question is regarding the price hikes again. Sir, you mentioned that there will be gradual price hikes over the next 2 to 3 months. Any quantification on an average, how much of that has been announced so far? And what is the sustainable margin profile for the business that you foresee post the current fiscal year?
So the extent of price increase is between 5% to 10% in consumer variables, both fans and air conditioners. And this could -- it could be possible that there could be further price hikes when the season starts kicking in. So -- but post this fiscal year, we do believe if -- it all depends a lot on how the raw materials span out in the coming quarter. In fact, in the third quarter, we did see some cooling off in the raw material prices, but the fourth quarter has started off again with some volatility. It is difficult to say what kind of contribution margins would be there in these product categories. But we do believe that it will be now moving north somewhere. So it should be coming back to normalized levels, if not in the 1 or 2 quarters, but definitely, it should be coming back to normalized levels in the next fiscal.
Right, sir. And by normalized levels, we mean 14%, 15% for the overall business. Is that correct?
No, I was specifically talking about consumer durables and air conditioners. So I'm not talking about company as a whole. As you have seen that we have been able to come up to the contribution levels in Switchgears, Cables & Wires, Lighting & Fixtures. So some of the cost increases have been passed on. Some of them have been taken care of by the increased production and efficiencies. So in these 3 businesses, we have taken care of the margins. So there the margins were weaker. That's why I'm saying that things will come back to normalized level in the next fiscal.
Got it. Sir, my second question is any update on the PLI scheme. And also lastly, what is the current inventory position in the channels right now, especially for our summer products?
So as far as PLI is concerned, we are participating in the air conditioners, PLI for certain components. And as far as the inventory is concerned, till about end of December, I would say these were normalized inventories, both for summer products because people were a bit skeptical because of the third wave kicking in. And I would say inventories are at a lower level in the trade in January. But I think that should start coming back to normal levels for the month of February.
Understand. Sir, and any indication of the possible upside from the PLI? That is my last question.
As the PLI has come for certain components and not for the finished products, so it's a very small component, and it's not, I would say, extremely meaningful.
The next question is from the line of Siddhartha Bera from Nomura.
Sir, coming back to the Lloyd business, we have done a lot of automation and backward integration was launched, and from here, how do you expect margins to see on a [indiscernible] achieved mid to high single-digit margins we have talked about in the past or -- at the EBIT level? Or how to think about on a [indiscernible] basis?
As I've already mentioned, the raw material prices is the main issue here, and it's not just the cost of production here because cost of production was achieved with the plant coming in. So, I would say, a lot depends upon the demand cycle, demand scenario from here. And we believe that the demand should remain strong in the coming summer season, and hence, the cost increases should be -- we should be in a position to pass on. So we should be coming back to double-digit contribution margins in air conditioners hopefully in the coming seasons.
I see. And from the washing machine plant, which we have just inaugurated, can you broadly indicate any -- what share of revenues to impact or quantum of value we are targeting for the washing machine segment for the next couple of years?
Yes. So the whole idea of washing machines and entry into refrigerators is to make Lloyd a complete brand for Consumer Durables. So it's still, I would say, it's a 2- to 4-year journey, and it will take its own time. Air conditioners continue to remain the main state. And the only reason for getting into manufacturing for washing machines is also to, again, just like air conditioners, have a complete control on innovation as well as on cost. So I think the whole idea would be to get a meaningful market share in the next 2 to 3 years and hence become a complete portfolio of products in the Consumer Durable category.
Understand. Sir, lastly, on the [indiscernible] if I look at other expenses, it is down on a Y-o-Y basis by about 7%. So it seems that the last part of it was offset by a higher ad spend. So current levels of expenditure is consumable or how to understand this part of the cost when this normalizes also from these levels.
So you're saying that the other expenses are lower than last year?
Yes.
I think these are normalized levels, I would say, going on from here and the advertising spends are also coming back to normalized levels as a percentage of sales.
Yes. Because other expenses, if you look at percentage, it was about 14%, 15% 2, 3 years back, it came down to 13% last year and now it is at 10% of sales. So just wondering if we take this as a foreseeable number of 10% or it can be what that's the normal level?
So I think we'll have to look at the sequential expenses, other expenses, and they are same as last quarter. So a lot also you mentioned is -- you're talking about 2 or 3 years ago, expenses. There is benefit of volumes also going up. So 14%, 15% is a high level of number. I think you should be looking at normalized levels from here.
The next question is from the line of Charanjit Singh from DSP Mutual Fund.
Sir, my first question is, if you look at Q3, Q4 last year, we had talked about 10% to 15% [indiscernible] across the product categories. And right now, when we are looking at the top line growth across categories like Switchgear, Lighting & Fixtures [indiscernible] not settling to 15%. So if you can touch upon the volume growth because I think volume growth has not been there in this quarter, how the volume growth can turn out going forward across these different categories? And my second question is on the room AC side. Now room AC, we have seeing already 2 seasons getting impacted. And Q4 now will see in Jan, Feb restocking happening. So how is the channel looking forward to restocking and any major impact you are seeing because of this Omicron on the room AC business? These are the 2 questions.
I think your first question, yes, in the third quarter, if you see there the volume growth is flat, but we have to see it over 2 years CAGR. And if you were to ask me what is the -- what is going to be the volume growth from here? It's very difficult to say, right? So we have to see how the demand -- we are expecting the demand to continue to remain strong. And hopefully, we should be looking at volume growth and value growth from here. So putting down a number to a volume growth, it's very difficult to give those kind of numbers. And as far as room air conditioners are concerned, as I've already mentioned, the last 2 years have been bad summers for the air conditioner business. So the trade as well as the companies are looking at a strong summer going forward. Hopefully, the third wave there should also be gone by then. So we are looking forward to a strong summer in the coming months.
The next question is from the line of Renu Baid from IIFL.
So my first question is, if you can give some more insight on the demand pattern. You did mention that there was softness or moderation in demand during the second half of last quarter. So more insights in terms of where did this pocket of weakness and moderation come through largely, was it rural urban centric or more concentrated in certain pockets of the market?
No, I think the weakness was overall, and it's -- I would say it was mainly related to the fact that there was uncertainty in the demand in the coming months because of the third wave coming in. So the trade suddenly started slowing down the purchases, the [indiscernible] and the movements of the customer in the marketplace was also going down a bit. So there was uncertainty overall, which continued even in the first half of January. I think now the trade is also realizing. Hopefully, this third wave is not going to be a long-term thing. And hence, things should come back as to what we're expecting, should come back in the end of January or early February.
Got it. Sir, at least, there is no concern on slowing demand, especially from the smaller towns and the so-called semi-urban or rural kind of market. So we don't have a large direct rural exposure, but from those segments of the market, those structural demand concerns are [indiscernible]
No, I would say it was -- structurally, I don't see any major difference. In fact, I would argue that the project segments continue to remain strong. There was no stoppage of construction. So we are actually seeing that there is no slowdown in the project demand. So -- and as far as semi-urban or rural areas are concerned, that is also going through the trade. And hence, there was uncertainty in the overall pickup for stocking for these product categories. So hopefully, that should, again, as I said, should come back to normal levels in February and March.
Sure. secondly, can you help us understand what is the quantum of cost under recoveries or the gaps that you're seeing on the ECD and the Lloyd portfolio, especially the RAC portfolio. And you have indicated of some likely price increases in Feb, March. So what are the quantum of pricing actions we are expecting in the fourth quarter, second half? If you can give some insights here.
I think we may have to at least increase 5% to 10%, depending upon each product SKU, but I would estimate 5% to 10% increase from here.
Sure. And lastly, on the Lloyd portfolio, there have been significant competitive pressures. I think the market leaders and newer M&C entrants. I mean some of the Korean brands have been back with a lot more price aggression. So how do we see pricing power or ability to take on the price increases passed on in the market as the summer kicks in? And especially in the backdrop that AC spend, which were relatively weak in the last or soft in the last 2 years are now coming back to normalized levels. So especially on the Lloyd portfolio, how do you look at the EBIT margins panning out in the next, say, 6 to 12 months? While contribution you've said positive, but then there are a lot of other expenses the company will incur. So where are we looking in terms of operating profitability overall to normalize for Lloyd?
As you mentioned about competitive intensity. I think the industry overall was going through a hypercompetitive scenario, mainly because of last 2 seasons not going well for the industry. So there are manufacturing pressures for every company. And hence, the cost increases or the price increases that should have happened in this industry was not happening. And hence, there was a feeling of hypercompetitiveness. I believe that in the coming times, because reinvestments in the brand channel will continue to happen from the overall industry. There should be an expectation of price increases. And whether it is any other brands, so people -- the fact is that it is not really -- it's a brand and distribution-oriented industry. It's not really that if I reduce my product price by, say, 2%, I'll start gaining huge market share. It's not really like a commoditized product. So there is a long-term play in pricing. Unfortunately, because of the low demand in the last couple of years, the cost increases were not passed on, which we are expecting it should get passed on. And Lloyd, because of low base, we are definitely expecting good growth. So there, we don't see a major impact of high expenditure eating out the complete profits from contribution. So I think we should be in a comfortable position as price increases start happening and volume growth kicks in.
The next question is from the line of Aniruddha Joshi from ICICI Securities.
Yes. Sir, 3 questions. One, we have seen in case of consumer companies Unilever, Colgate, et cetera, that there is a difference between trade margin offered to, let's say, general trade versus modern trade versus e-commerce. So what are the -- and now there is -- after a lot of years we have seen a lot of acquisition from the trade also. So how do we see that happening possibility in Consumer Durable industry also, and Havells being the major player, how do we -- how are we prepared to tackle this issue? That is question number one. Question number two, is that -- say Havells is the large brand and Lloyd, you call out the numbers separately. But what is the revenue contribution of Crabtree and Standard brands at this stage and how it has moved over the past 2 to 3 years. Because I guess probably is the Lloyd discussion from how these 2 brands are taking relatively side backseat or it might be just my wrong observation? That is second question. And third is, in case of Lloyd, what will be our share of voice versus the share of market and how it has helped over the past 2 years, 3 years, to gain the market share? Yes, that's it from my side.
As far as your first question goes, Havells traditionally has been a strong player in the traditional general trade. And our relationship has been extremely strong. We continue to deepen not only the relationship, but our penetration into the general trade because we believe that this will continue to remain a very large part of Havells skills. But in the last 4 or 5 years, there has been a renewed focus by the company and newer channels or alternative channels which are coming out whether it is modern trade or e-commerce. And our belief is that we need to go where the customer is going. So some of the customers is moving towards modern trade and e-commerce as well. So we should be present there. As we have maintained that our policies or our relationships for the trade has been extremely strong. So we do -- we believe in a scenario where we don't let any channel take advantage of the other channel or overpower the other channels. There has to be a completely, I would say, great relationship amongst each channel so that consumer is not shortchanged by going to 1 particular channel as against the other. So we have been maintaining that. And hence, we do not believe in passing on higher margins to certain kinds of channels only because of the fact that they can probably get bigger volumes in 1 go. So our belief is that we want distributed scales, but also we want to be present wherever to channel is. So we do not believe in price competitiveness amongst the channels.
Sir, our trade margins, sir, more or less same across all the channels, is that understanding correct?
That is true. Certain channels have higher costs of operations that the company takes care of. But for the company, it may not necessarily mean lower margins because there is a distribution cost also to channels where there is distributed scale. So for the company, it is not really higher or lower margin business. So we are quite comfortable in selling to alternate channels as well. Crabtree and Standard cater to certain kinds of customers. As we have always maintained, Crabtree takes care of the architectural segment as well as Standard is very focused in certain parts of India as well as a contracting segment. So these are sizable brands and have good growth trajectory over the past few years. Standard in fact is now becoming almost like a multiproduct brand within the portfolio. And we are looking at a INR 1,000 crore number in the next 1 or 2 years in Standard. We are already doing close to about INR 600 crores or INR 700 crores business in Standard as well as Crabtree in the architectural segment continues to remain very strong, contributing almost INR 250 crores to INR 300 crores sales. And as far as the share of voice is concerned, we maintain that Lloyd will continue to invest in brand building over the next 2 or 3 years. And it has helped us in the past as we've moved from a certain category or brand to a different category or brand. And this expense will continue in the future as well.
Sir, just a follow-up. How much is the SOV versus SOM? Any percentage or any number that you can share in case of Lloyd?
Not on this call.
The next question is from the line of Achal Lohade from JM Financial.
My first question is with respect to the Lighting business, we've seen last couple of quarters have been extremely good in terms of the momentum. What I wanted to understand is in terms of the growth, is it driven by the price action and also in terms of the professional or industrial luminaire?
Yes. So Lighting has actually seen less price action as compared to the others because the components going into Lighting is not necessarily witnessing a high level of inflation. In fact, what we've seen is the deflation which was coming in the LED chip, that's actually slowed down. So it's -- there's no major inflation in Lighting business. And whatever growth that we are seeing is structural growth, which is coming through distribution, reach enhancement and product additions. And also, I mentioned earlier that Industrial & Infrastructure segment has also started taking in better volumes. So the professional Lighting business is also seeing decent growth in the last 1 year. So all this contributed towards decent growth in Lighting business.
Understood. And any update on the PLI for lighting and whenever it comes, do you see a substantial revenue contribution from export?
No. Again, both for air conditioners and lighting, PLI is going into components rather than finished products. So we are not applying for lighting PLI.
Got it. And just one more question, sir. In terms of the product categories or within product categories, the subsegment, is anything missing given the diverse portfolio we already have. So any thoughts on the same, sir?
There are growth opportunities in each product category of Havells. I can give you many examples, but maybe that's a different discussion. But let's even take a business of Lighting. There is so much of scope to get into facade lighting, museum lighting, stadium lighting. So there is scope of growth opportunities in every business that we are in. So I would never be able to say that we are a complete product portfolio company. We are a comprehensive -- we have a comprehensive product range as against [indiscernible] advance. And our focus has always been to focus on every business rather than just treating it as a brand addition or a product addition. But within each product category, there are extremely good organic growth opportunities.
Got it. And just last question, if I may, with respect to CapEx, if you can talk about FY '22 and '23, what is the CapEx number one could work with and in which area will it go?
We are looking at about INR 250 crores to INR 275 crores CapEx in FY '22. And CapEx plans for FY '23 are still under making.
The next question is from the line of Naval from Emkay global.
I have question on Lloyd. So what we can understand from the channel basically Lloyd has seen market share gains on a YTD basis this year. So can you please highlight on the touch points? What was that number when you ended FY '22 -- sorry, '21? And what we are right now? And any plans for future in terms of numbers [indiscernible] that as well.
Actually, one of the key feature of air conditioner market in general and when I had come to Lloyd, but the last 2 years, you would appreciate, have been sort of fairly tough on this industry because for some reason, the COVID had decided to strike at the sort of heat of the moment -- or peak on the season for the air condition. So I think a lot of things have gone slightly here and there and we are hoping that even this wave 3 sort of peaks out in January. So that at least in 3 years now, we have this [indiscernible] season -- summer season for air conditioning. And I think the real [indiscernible] of every brand would really come out in this season. Having said that, there have been certain fluctuations on the Lloyd side. But if you recall, we were around 8% to 9% when we acquired the brand and this is where it has been sort of going around for the last 2 years. So that as we speak this year and the starting from early this year, we are now around 10% in terms of the market share. The market share, I think we are holding and also started marginally improving. And the reason for that is that our distribution retail significantly improved. If you recall, when we acquired the [indiscernible] distribution over the [indiscernible] business, [indiscernible] distributed in every state. And now we have not only [ defining a still also in ] whether it is e-commerce, whether it is modern format retail whether the regional retail. So I think the entire infrastructure has been put in place. So there have been sort of early signs of factors there. But I just said, I think this year should be something -- I think this should really prove how the things are going. And hopefully, we will not have further disruption in the AC industry.
Can you state any number in terms of touch points on the off-line case?
So that's not important and that we will not talk on the call.
Okay. And lastly, what is the current contribution from e-comm for Lloyd?
Lloyd e-comm, we started actually very recently. I think there's one of the analysts before you also asked about the challenges between online and offline. And when we realize that we still wish to be settled, we decided that Lloyd should only be launched when we're also able to build the parity as with other product. And we are very pleased what the reception we have got on both [indiscernible] and air conditioner.So currently, again, I would say wait for the season.But this has been around 6% to 7% is our online as of now. But again, I would claim that this year should be the one we should give you the right number. But otherwise, the numbers have been very sort of up and down because of how the seasons have played out.
The next question is from the line of Nitin Shakdher from Green Capital Single Family Office.
My question pertains to advertising expenses versus last quarter. I think there is a significant bump up on advertising expenses from INR 51 crores to INR 100 crores. Now is this because of the 4 new launches which was catered for this quarter? That is one. And the second part to this question is what is the share of advertising expenses, which goes to the Lloyd Consumer business?
No, we have nothing to do with the launches as we have also mentioned in our commentary, these are the planned advertisement, and we have to come back to the normalized levels because of the COVID, the advertising expenses also have to be evaluated in terms of the efficacy. And because of the holiday festive season, I think there has been a general increase. And if you go 2 years back, that's what the numbers used to be. So this is in a normalized way. This is not something we show the one-off order launches or [indiscernible]. And the Lloyd, whatever we spend on the Lloyd is reallocated to Lloyd. So Lloyd will you around almost 5% to 6% of the sales will go into advertising.
[Operator Instructions] The next question is from the line of Shrinidhi Karlekar from HSBC.
Sir, just 1 question from my end, again on pricing. Sir, it appears like the company is quite cautious in taking price increases in consumer-facing businesses. I just want to know, sir, is it the strategic choice that company is opting in this high commodity inflation period? Or is it also a reflection that the competitive intensity in the category that company of it has significantly increased in recent times?
I think it is got to do with remaining competitive. So it's neither this or that. It is a -- business synergy is art, it's not a time. So I think we remain completely on the ground after the situation on the ground. And something when the unprecedented cost increases happen, you see there could be a lag effect. So I was [indiscernible] attributed to the change in the overall strategy of the management or how the company value system has changed. I think one has to be sensitive to what's going on. And I think it's a combination of multiple factors. I mean not just [indiscernible] 1 factor is a competition repeat. I have never seen in my life this competition has been less in this country. You are fully aware of the sale. The competition has always been there. I think philosophy of the management has been changed. But in unprecedented times, you have to take decisions which could be gradual. I don't think it should be [indiscernible] of the management or management has become defensive. We do not think like that. And at the right time the appropriate [indiscernible] whatever appropriate action needs to be taken, will be taken.
And that is really helpful. The second, related, sir, like we have seen the prices of product goes up by like 20%, 25%, right? So just wondering, going into next couple of years, would your margin that you strive at the contribution level would remain what it was before this inflationary period. Or there could be understanding that because the product prices have gone up, maybe we should have some bit of a lower contribution margin. So just wondering, pricing decisions, is it driven -- is it fair to say that we would continue to strive the same contribution margins that you used to strive before this inflationary period?
Yes. I think that will not change. And that's what I was trying to explain you maybe sometimes the quarterly outlook could blur the long-term motive of the business. So let me just confirm the long-term motive of the business has not [indiscernible] at all. That will remain the same. Maybe just play out in a few quarters. That could be the only difference. And sometimes [indiscernible] a seasonality in products. When you look at the single quarter, when you look at plans, when you look at your competition, when you look at other sort of product [indiscernible] we believe there will be better receptivity in the environment, whether in the state of the consumer. So if one has to integrate these data points [indiscernible] over the year? And then [indiscernible].
The next question is from the line of Latika Chopra from JPMorgan.
Most of the questions are answered. But 2 things that I wanted to check with you. Firstly, again, picking up on Lloyd a little bit more. Clearly, the industrial landscape is being fairly dynamic probably more aggressive from a lot of players. And you did overhaul your strategy here a few years ago, which kind of benefited you. And now, of course, Dynamic is clouding the overall performance for you. But do you think that there are more structural interventions for -- from your side, which are needed whether it's from a product perspective, whether it's from a consumer engagement perspective, a faster distribution scale up, would you want the salience of Tier 3, Tier 4 cities where the penetration opportunities will be significantly higher? How are you thinking about that? And also versus 2, 3 years ago when you were overhauling this whole strategy for Lloyd, do you think that the sustainable margin trajectory over the medium term for this business is relatively lower or probably more volatile?
Starting with the structural interventions, you likely mentioned, Latika, the reason being starting the day we acquired Lloyd, and I think we have been largely successful in [indiscernible]. If you ask me that process is over, certainly not. I think that will continue distribution. I just talked about it before you ask this question, how we have become an omnichannel? How we have sort of deep distribution system into northern Tier 1, Tier 2, but not getting into Tier 3? So that was maybe onward. That will continue. As I said, there have been -- we started our own factories. We have the largest factory now at a single place in India. But unfortunately, this pandemic you mentioned, it's locked everything. Sometime it also questions the efforts [indiscernible] has done. But I think those efforts are persistent. Those efforts will continue. This process will only accelerate. I think we are very confident what Lloyd can achieve. And yes, I think the industry is competitive, may be the intend to be higher than other products is always operating. I think the take away the long-term sort of attractiveness of this time? And how is the home going game players which you can play out fully in that. So I think that story is very much intent. And this kind of competition will continue to sort of grow and go down. But overall, we believe the sanity is prevailing. And as I think I also mentioned in the beginning, I think the competitive scenario, which is also changing. And I think once we are also getting more and more stronger, I think it is something that we can play out to our advantage going forward. In terms of the margin profile, yes, there could be certain variations, I think one product can't be compared to the other. [indiscernible] also there a different product [indiscernible] different margin profile. But I think it is a fairly attractive proposition in terms of to see what overall size this business can achieve. And I think some players in this industry have shown there is an opportunity to make double-digit margins. And we believe that it's something we should also target and we're pretty much in range of achievement. So this [indiscernible] otherwise you'll see will break as well as the margin enhancement opportunities in this industry and Lloyd as well.
You said double-digit margins are possible, but considering your way of getting into new strategies as well, so are we looking at 7%, 8% and for [indiscernible] maybe even 4, 5 years down the line or this double digit is a serious long term kind of a ping that -- you're very okay with that, and it's okay if your focus is on top line and it's diversifying your portfolio, but just wanted to hear from you what is more prioritized? How does it fit in your scheme of things?
The growth will definitely be priority. And while you talk about the other product categories, if you could play some [indiscernible] now, that could happen because sometime the investment get expand. And that's why [indiscernible] is that I was talking [indiscernible] which is air conditioner. The area of opportunity is the double-digit growth. [indiscernible] margin could be in the range of 7% and 8%. So I think that's something you should be [indiscernible] but the large opportunity is I think growing margin and [indiscernible].
Sure. And my second question was on the ECD business. If you could give some color in the business mix for ECD segment in terms of key products [indiscernible]. And also is there a way to read how share of the premium versus the [indiscernible] product is changing in this mix? And how do you anticipate this trend to behave considering your expanding this portfolio more in, smaller towns and rural? And is it correct to assume that the margin profile might not get affected that much compared to where it was at pre-COVID levels despite the company expanding into newer geographies?
So I'd say that as far as ECD is concerned, the whole idea is to have a good mix, [indiscernible] for premium products, and, I'd say, the right way to look at it is that we are taking our premium products into the semi-urban and the rural areas as well. So whether it is water heaters or fans. So I don't see that the margin profile would change a whole lot with our strategy the expansion into deeper penetration. What I'd say that the major attribute towards reduction in margins has been the [indiscernible] And as and when things come back to normalized level, either on the raw material side or the pricing side, things should come back to better levels from here. And hopefully, coming back to the pre-COVID levels also. So neither there is the expectation that's going deeper into rural areas would reduce our contribution levels or the fact that because of the last couple of years, there is premium percentages actually going down. I'd say that it is stable or going up only.
The next question is from the line of Pulkit Patni from Goldman Sachs.
Sir, actually, most of my questions have been answered, but since I've got the opportunity, I'll just ask one. If we look at, say, slightly medium-term outlook, say, 2 to 3 years, and it's fair to [indiscernible] business into 1, which is related to, say, new home build and CapEx, like Cables & Wires, Switchgears versus the other which is related to more discretionary spend. Would you have a rough sense of switch of 2 businesses in your internal estimate could grow [indiscernible].
I'd say that last one way what we've schemed is the construction industry has started doing well, and this is after a very long period of slow growth in real estate. The other thing is that even the CapEx cycle of the infrastructure demands have started picking up extremely well, so going forward in the next 2 or 3 years, at least, what we felt as the discretionary spend products would outweigh growth as compared to the more structural products. I would say, we might be witnessing similar growth. Now it could be possible that we have different base in different product categories. For example, our appliance category might be at a smaller base of smaller penetration as compared to our mature products like Switchgears and Cables & Wires. So that could affect the growth profile, but not necessarily because of the demand scenario. I think demand should remain strong in the infrastructure side as well as the real estate side.
Next question is from the line of Ashish Jain from Macquarie.
Sir, my question again pertains to Lloyd's. And you spoke a lot about what the target could be in the last -- sorry, in the next 12, 24 months. But I just wanted to touch upon 2 things. One is from a distribution spread point of view, where are we currently versus what our end game is in terms of the distribution penetration. And similarly, on the product launches and all -- especially on the AC side, what do we see in terms of the product pipeline and all that we could launch. Are there like any obvious gaps which we think is kind of impacting our market share gain outlook and all?
I think as far as Lloyd is concerned, the distribution is very different from what it was a few years ago. We are far more deeply penetrated. We are present in the A category chain, A category outlet, which are the modern format chain. And lastly, last 1 year or so, we are aggressive in the online space as well. So I think from a distribution point of view, Lloyd is a far more available brand as compared to what it was 2 or 3 years ago. However, just like in any mature product category of Havells, this is an ongoing journey, whether it is in the FMCG or FMEG. This is an ongoing journey, and distribution will continue to be enhanced over the next few years. As far as product portfolio is concerned in air conditioners, Lloyd is a complete portfolio of product categories. There will be innovations which will continue to happen. But I don't see that Lloyd is in a position where we can't compare ourselves to any other major brand in terms of product offering. Yes, the new product categories, washing machines and refrigerators will continue to enhance our product chains to compete -- to be a complete play in those categories. So that will happen over the next 1 or 2 years. But in air conditioners, Lloyd is a complete player.
Sir, just 1 follow-up on that. Also, when do you think Lloyd can do a double-digit contribution margin on an overall portfolio basis. I mean I'm not looking for exact time frame and all, but given the scale we are seeing in washing machine, the cost that we have currently. Based on that, if you want to give a sense when Lloyd can see most...
I think Rajiv has already mentioned that for us, the major focus will be market share expansion, product deepening and we will continue to invest towards brand building and distribution penetration in Lloyd. So whether it's a double-digit margin, whether it's a high single-digit margin, I think that's not something our focus is. We believe that Lloyd is a part of a very large industry. In fact, I would argue that it's larger than the electrical industry. And hence, there is a huge opportunity for a brand like Lloyd to grow market share in this category. So I think for the next 2 or 3 years, our focus will be on market share expansion. And be a decently profitable business, and I'm not committing myself to a double-digit or a high single-digit margins here. We'll continue to invest, as Rajiv has mentioned, in brand building, in product offerings.
The next question is from the line of Rahul Gajare from Haitong Securities.
I have my 2 questions. Could you highlight earning growth in the Cables business, Cable & Wires business. That is the first question. And the second question is on the Switchgears segment. Historically, this segment used to have about 35% plus kind of margins. With housing demand now picking up, do you see the company reaching the earlier levels in at least that's the margin [indiscernible]. These are the 2 questions.
So as far as Cables & Wires are concerned, the volume growth is flattish as compared to last year. And in Switchgears, we definitely see growth coming in. Now I can't say there is 35% or 38%, but we have been achieving very high margins in this business. There will be, as construction industry, as real estate demand continues to go up, there will be positive demand, which will come in, which will maybe put some pressure on the margin front. But then overall, I don't see that making a meaningful difference because we are participating well in the real estate segment as well. So the margins thing is a bit different than the complete retail side. But overall, I don't think that will make a meaningful difference.
Next question is from the line of Kunal Sheth from B&K Securities.
My first question is pertaining to Lloyd. Several washing machines which we recently launched, what is the market positioning that we are targeting there? Are we targeting it at par with the market leaders in terms of pricing or we will be at a discount?
Well, it's always a journey in every product category and brand. And Lloyd, I would say, is in the journey of becoming a complete portfolio. And rather than discussing too much about the pricing, it a lot depends upon the complete portfolio. And how strong are you in distribution. How strong are you as a complete, I would say, range of product categories. So finally, the trade has to accept your product and the consumer has to accept your product. So it's a journey, and it will take 2 or 3 years for us to get established in washing machines and refrigerators.
And my second question is pertaining to pricing. Sir, while currently, we are in an inflationary environment. I just wanted to get your view on historically, once the raw material starts to pull off, do you get to retain some of the benefits or most of the benefits has to be passed on to the market?
First of all, we have to see whether we are able to pass on the entire cost also or not. So again, it depends upon product category to category, in Cables -- product like Cables & Wires or in customer [indiscernible] like projects, a lot of times, mostly, you have to pass on both on the increase side as well as on the decrease side. But yes, possibly, there could be some time of some retention of some margins when things cool off. But over a longer period of time, these things stand even out. So I would say that if there was a meaningful reduction in say cooling off, yes, that will also have to be passed on to the consumers.
The next question is from the line of Amit Mahawar from Edelweiss.
Sir, I just have one quick question. Last, maybe around 2 years, if you see broadly in the COVID phase, it seems our electrical business has significantly ramped up, and we've become far more stronger on categories like Switches, branded wires. Roughly, can you indicate what kind of market share gains will have accrued to us in the past 2 years as we consolidate our position in the segment. You can also give us some quarterly remarks here, sir, what we did here on these 2 segments.
I think we have strengthened our share and it's difficult to [indiscernible] in the pandemic, sometimes it's difficult to articulate what has gone. I think let the stabilization come. And then I think [indiscernible] give you a meaningful discussion. But clearly, I think that we have been benefiting both by unorganized to organized transition, benefited how have us responded in the crises whether business or consumer. However, supply chain has been very resilient in these times. So the new teams have sort of contributed to the performance of Havells. And I think the thing always going to look sort of better in our yield because of property up cycle, we just started after almost a decade reasoning that momentum is maintained. And that -- If a few things have happened because of Omicron and all, there was the last part of the Q3 has not been sort of that great. But I think things will come back and the companies which are sort of committed to the long-term development of the business, I think that will change. And that's why we believe what you sort of attribute to maybe 2 products. I think that's something we are [indiscernible] across the product categories. So maybe I think in a few quarters, we could have a more meaningful discussion in that. But clearly, I think we believe that we have a good chance of outperforming.
Sure. Sir, one last quick question, parting question. In terms of next 5 years of capital allocation strategy for Havells, can I say that we can broadly go into all the divisions in equal proportions, specifically, I'm talking about electrical segments versus where ECD and Lloyd? Or we have some specific attribution in terms of capital allocation and [indiscernible] for the next 5 years.
Capital allocation will be very prudent, so it will depend upon the state, I think product category, but I think everybody [indiscernible] share. I think that will also depend upon the demand scenario and category, what kind of maturity deal with that. So there can't be a single answer to this. But yes, I think our capital allocation will be beneficial to our stakeholders, whether the shareholder or customers [indiscernible] own manufacturing. Could that put them to what we have indicated in the past will also be maintained in the future?
Ladies and gentlemen, due to time constraints, we take that as the last question. I now hand the conference over to Ms. Bhoomika Nair for closing comments. Over to you, ma'am.
Thank you, Stephen. I would like to thank management of Havells India to give us this opportunity to host you. And I would like to thank all the participants to join us. I would now like to invite Mr. Gupta for his closing comments. Over to you, sir.
Thank you very much, Bhoomika for organizing this, and thank you for spending the time. Thank you, everyone. Stay safe.
Thank you. Ladies and gentlemen, on behalf of DAM Capital Advisors, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.