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Ladies and gentlemen, good day, and welcome to Q1 FY '24 Earnings Conference Call of Voltas Limited, hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Aniruddha Joshi from ICICI Securities. Thank you, and over to you.
Yes. Thanks, Yashashri. On behalf of ICICI Securities, we welcome you all to Q1 FY '24 results conference call of Voltas Limited. We have with us senior management represented by Mr. Jitender Verma, Chief Financial Officer; Mr. Manish Desai, Head of Corporate Finance; and Mr. Vaibhav Vora, Manager, Corporate Finance.Now, I hand over the call to the management for the initial comments on the quarterly performance and then we will open the floor for question-and-answer session. Initially, each participant is required to ask 2 questions in the initial round. And then they can join for the another round of questions. Thanks, and over to you, sir.
Thank you. Thank you, Anirud. This is Jiten. And welcome to everyone who has joined us in this call. I know it's a -- it maybe a weekend for certain people, but we all work nowadays longer. So, thanks once again for everybody to join.As we begin, I would start by saying that the financial year '24 began on a subdued note with high inflation and concerns on slowing of economic growth and poor health of banking sector. Policy tightening by central banks in response to this inflation continues to raise the borrowing costs leading to constrained economic activity. While inflation may continue to remain high, it may further escalate owing to shocks posed by geopolitical unrest, natural calamities hitting various parts of the globe. This in turn may trigger a more restrictive monetary policy.Concerns regarding the performance of banking sector receded during the quarter, but high interest rates filtering through the financial system trimmed the supply of credit. The rise in central bank policy rates to fight inflation would continue to impact economic activity. As per IMF, global growth is anticipated to fall from an estimated 3.5% in 2022 to 3% in 2023.While economies across the world are facing issues, the Indian economy has shown resilience and grown during the quarter. The Center's fiscal deficit remained under control. GST collections, Manufacturing PMI, sale of automobiles, number of UPI transactions, electricity consumption, all reported strong numbers during the quarter. The resumption of interest by FPI's in the equity market showed a good infusion of funds raising the indices to a record high. The Indian economy does not seem to dither with the concerns on the inflation, primarily driven by rise in crude oil prices and food inflation. The USD-INR, however, continues to remain under pressure moving to the upper end of range to INR 83 owning to the rise in yields [Technical Difficulty] due to U.S. credit downgrade and other macroeconomic factors that may lead to higher import cost impacting the overall growth.Given the overall business backdrop, this quarter, for us at Voltas, was both exciting and challenging. The incessant rains impacted the sales during the quarter and thereby slowed down the anticipated growth in the cooling business segment, both for the company and the industry. Delayed collections in our overseas business resulted in a conservative provision impacting the overall result. Our consolidated total income for quarter 1 FY '24 was INR 3,430 crores as against INR 2,795 crores in quarter 1 FY '23, a growth of 23% year-on-year. Profit before tax, PBT, and after tax was INR 203 crores and INR 160 crores, respectively. Earnings per share, not annualized, for the quarter ended 30 June 2023 was at INR 3.91 against INR 3.29 reported last year.You all have seen the snapshot of our results for this quarter, therefore, I'm not repeating that. However, we're looking at Segment A, Unitary Cooling Products, UCP. Q1 of FY '24 was projected to be a high-growth quarter. However, erratic weather conditions in April and May, especially in North and West India, our usually stronger markets, dampened the spirits. However, availability of high tonnage products, aggressive consumer finance schemes, strong channel and network presence coupled with revival of the demand in the month of June helped Voltas achieve volume growth of 15%, higher than the overall industry growth on Y-o-Y basis.Voltas' product bouquet with advanced features and long-term advantage of energy savings helped the split inverter category of air conditioners remain in high demand aiding to the growth for the segment. The expansive product portfolio, SKUs designed in-house and competitive pricing has continued to have a high share of contribution in excess of 80% of inverter sales in room air conditioner category for the quarter. While split AC showed the growth, demand for windows AC, primarily driven by sales in North, remained weak because of the unseasonal rains.Our competitors went aggressive on the pricing to meet their primary billing, which impacted market share and margins. However, secondary sales driven by incentive schemes across sales channel, healthy tie ups with modern trade and organized channels, growing network of exclusive brand outlets, or EBOs, including experience zones at strategic locations along with a focused customer centric approach during the season helped Voltas to...
I'm sorry to interrupt. Mr. Verma, this is the operator here. Sir, could you please use the handset mode because your voice seems to be fluctuating in-between.
I'll just repeat. Growing network of exclusive brand outlets, EBOs, including experience zones at strategic locations along with a focused customer-centric approach during the season helped Voltas to strengthen market share to 20.6% at the end of June 2023.Sales growth in the commercial refrigeration was lower during the quarter on a higher base of the corresponding previous quarter. Weather disruptions have impacted the consumption of cold beverages, chocolates and ice creams leading to the lower-than-expected demand from OEMs. Within the commercial refrigeration category, demand was buoyant for water coolers and visi coolers. Affordable pricing, tie ups with modern and retail channels, active channel participation, aggressive pricing with lucrative dealer incentive schemes garnered a positive and a strong growth for the air cooler segment as well. The category has grown by 49% in volume with improved gross margins. Commercial air conditioners garnered good traction in chillers, VRFs and cassette ACs during the quarter with large scale O&M orders paving the way for good numbers this quarter. Our focus on customer needs and our track record has helped us win multiple big ticket orders for O&M.On the cost front, softening of commodity prices, tactical sourcing, manufacturing efficiencies and various value engineering initiatives across all our products has helped contain material costs and protected margins to a great extent. We will continue with our efforts to remain competitive and continue to provide value for money products to our consumers, which will help us, not only to maintain our leadership position, in both market share and margin, but also continue to be a key differentiator among other players in the industry.To summarize, for the quarter ended June 2023, UCP segment registered revenue of INR 2,514 crores, a 16% growth in turnover from INR 2,162 crores in quarter 1 FY '23. The segment reported an EBIT of INR 207 crores in quarter 1 FY '23 (sic) [ FY '24 ] as compared to INR 166 crores in Q1 FY '23, a growth of 25%.Segment B, Electro-Mechanical Projects and Services. Segment revenue for the quarter was INR 679 crores as compared to the previous corresponding quarter revenue of INR 455 crores. Segment result for the quarter reported a loss of INR 52 crores, loss in quarter ended June 2022 was INR 12 crores. With renewed focus on our wholly owned subsidiary post business transfer, our collective efforts resulted in better performance of the domestic projects business in terms of both execution and managing working capital efficiently and also securing healthy orders during the quarter. The domestic projects segment booked orders worth INR 608 crores as compared to INR 191 crores during the previous quarter. Further, a tight monitoring on working capital with focus on certification and collections, improved return on capital employed and delivered good results during the quarter.All ongoing projects in our international business are largely under nascent stages and while the business reported a higher revenue, as per our internal policy, the margins on all such projects will be recognized on reaching key milestones. Considerable delay in certification and slowing collections against due receivables continued in a few projects resulting in provisions following our prudent and conservative approach. Having said that, all efforts are focused on engaging with customers for expediting certification work and improving collections of the amounts due. Order booking for quarter 1 FY '24 was INR 755 crores as compared to INR 435 crores in the similar period last year.During the quarter, the company has been intimated of a request received by the bank for encashment of the bank guarantee from the main contractor in one of the projects in Qatar. The company has issued a cessation request to the bank pursuant to which the bank guarantees have not yet been encashed. Basis internal assessment on technical merits of the case and legal opinion on the contractual aspects, we are confident that it has good grounds to successfully defend any claims that may arise on the company.The carryforward order book for domestic projects stands at INR 5,244 crores containing orders across water, HVAC, rural electrification and urban infra activities. The international order book as at 30 June 2023 stood at INR 2,949 crores largely in the UAE, Qatar and Saudi Arabia regions. Total carryforward order book of the segment stood at INR 8,193 crores vis-a-vis INR 5,362 crores of outstanding orders as at 30 June 2022.Segment C, Engineering Products and Services. The segment revenue and results continued to report improved performance for the quarter registering healthy growth over previous year. The segment revenue for the quarter was INR 142 crores and EBIT for the quarter was INR 54 crores, respectively. Cutting edge engineering solutions coupled with a focused customer-oriented approach supported Mozambique operations in performing well, contributing significantly to the results. The revival of the capital cycle, along with lifting of export duty on iron ore has sustained the sale of crushing and screening equipment albeit with restricted credit to the contractors. While capital machinery roll out from the principals has increased, the volatility in yarn prices and slowing exports coupled with supply chain disruptions has lowered the momentum for textile business. Nevertheless, the focus on accessories sale, recent announcement of PM MITRA Park and the proposed PLI 2.0 scheme should help in sustaining the performance going forward.Voltas Beko. Voltas Beko continued to garner strong sales since March 2023. High demand across all company products, that is, refrigerators, washing machines, microwaves and dishwashers resulted in a growth of over 40% during the quarter. Revenue was also driven by increased tie-ups with organized retail, improved participation from e-commerce and a better product mix. The expansion of distribution reach, focus on product placements with existing and evolving sales channels, wider range of product SKUs and in-house manufacturing of the high value-added products continued to support the overall growth. Timely availability of affordable and durable products has been the key strength for Voltas Beko.Our concentrated efforts on innovation with differentiated features and long-term tie-ups with organized trade in the targeted and strategically important markets is anticipated to further support our growth in future. These collaborative steps have resulted in securing a market share of 5% in the washing machine category with 9.6% market share in the subsegment of semi-automatic washing machines. The company also maintained its market share in refrigerators at 3.5%. Our objective is to have a vast array of value-added products, which will be manufactured at our own factory which will help us control and thereby strengthen the supply chain to improve overall margins. With this objective, trials for the fully automatic front loaded, like washing machine to be manufactured in-house have been completed and the production of the first pilot batch is underway currently.Outlook. The period of July to September is usually a lean period for cooling products. However, the start of festival period is expected to witness a spurt in demand. It will be interesting to see the impact of factors such as inflation, revival of rural demand, movement in crude oil prices, rupee behavior and policies made by RBI to address the overall economic growth agenda. Both the government and private sector's capex commitment for FY '24 remains strong. Uptick in the order booking coupled with momentum in execution of the MEP projects should help report better performance for our project business, too. In general, we anticipate a pickup in the pace of overall economic activity and we would seize the opportunity to continue on the momentum of growth.That's all from my side. And I would now request the moderator to open the meeting for question and answers. Thanks.
[Operator Instructions] We have our first question from the line of Ankur from HDFC Life.
Just a few questions on the UCP segment. So very good performance, the 15% volume growth that we're seeing. But just if you could help us understand because industry volumes are maybe flattish on the secondary side during the quarter. So if you could help us understand how would our secondaries have done during Q1? And is it also a case of us kind of filling in inventory in the channel? Is that the reason why our primaries look so much higher than maybe what the overall secondary growth would have been?
So Ankur, this is Manish over here. Yes. Ankur, in fact, the question of higher primary and the inventory with channel partner probably won't material because if the inventory is there with the channel partner, obviously, it will see a reverse impact on the primary sales on the brand. So what is happening is, although we all know North region, which is strongest for the air conditioner market and contributing larger share overall, that didn't go well. And if I look from the Voltas perspective, we are relatively stronger, as you all know, in the North region. So in a way, in the initial months of the quarter, we were having a lot of apprehension on the volume and the growth. The reason being is because the industry was not looking into volume growth at all in this quarter because of this inclement weather. However, you recall that we have taken some steps in some -- in the South market to strengthen our market share, which we are continuously on a weak foot. That actually has [ wilted ] us because what we have seen in our trend that we have -- if I look from my primary perspective and generally secondary also follows the primary, our volume growth for both East and South was on a much higher side followed by North because North, we all know, that the growth was marginal. So in and all, I would like to say that the strategy or the focus what we did in the past 2, 3 quarters since last year to make our position stronger in South region, actually starting getting some kind of momentum. But I would be saying it is not -- it will be too early to celebrate on this front because what we need to ensure now that we sustain this momentum in South, winning the confidence of the channel partners and customers both and should further strengthen our position as we move forward.Similar steps have helped us in moving in the East region as well, where we have deliberately performed much better than any of the brand. As I said, we will continue to do a monitor on our steps and our strategies in these 2 regions to further strengthen our positions, not anyway going to be a strong foothold in Voltas, as well as for the overall industry and will not leave our footage or [ I'll leave ] not any stone unturned, if I were to further aggressively move in the North when the market becomes more open for the cooling product categories.
No, fair point. No, I just want to reconcile the fact that our volume growth of 15%, how would that have been versus the industry growth, given the fact that our market share numbers, both Q-on-Q and Y-o-Y seem to be lower, right, for Voltas. So, I mean -- yes.
So, in fact, if you look for the month of June, we improved upon. If I look into sequentially from the month of May, on a Y-o-Y also, if I look into it on a quarter-on-quarter of [indiscernible] on the Q3 basis, there also, we have seen some improvement over there. As I said, had the North will be doing better for the industry and definitely for Voltas, probably we would have seen a good amount of improvement in market share for the Voltas as such. So this is where it stands. If I look from the industry perspective, we are hitting this perfectly all right. Industry has not grown in the volume. The growth is there, but what the data we are getting from all our industry players and from the market, it is lower than single-digit.
Okay. And then one last on pricing -- yes. Sorry. And just on pricing, any change in competitive behavior from any of your peers? If I can name some like Lloyd, Daikin, who have obviously become hyper competitive over the last few quarters. Any change there? Or is it still very, very volume-focused over margins?
Ankur, we all know that if the initial months of the recent quarter won't perform in the line with the growth which company has projected or the brand is projected for, the only tool what they have is to resort on the pricing. So we did see aggressive pricing by a few brands. You named almost all, so I'm not going to put again to save time on the Q&A session. So that we have seen it. But as I said, we won't concentrate only on the price because there are certain tools in our hands, which Mr. Verma's in his opening spell has clearly spelled out on which we focused upon. It will be circulated to all the investor fraternity as well. So I would say that rather on price, we have more focused upon the BTL activities and within the confidence of the channel partners on some of the markets where we were focusing upon for a long time, and that has helped us. And as I said, we have to continuously drive this as we move forward to achieve our strategic goal of market share, as well as margin what we're looking for.
We have a next question from the line of Siddhartha Bera from Nomura.
Sir, you have indicated that in the quarter, where we have seen some commodity softness as well. And our revenues are also higher on a sequential basis compared to last quarter. So this margin drop sequentially, I think can you just explain what has been the major issue? I understand that you have not taken any price cuts is what you are indicating, but slightly more color on how to look at the margins from current level?
Siddharth, in fact, in the past call also when we said why the commodity softening is not going to generally help the industry. The reason being is because looking into the seasonality of the product, generally, the intend be -- raw material gets [ intended ] at least 3 or 4 months in advance. And that's why if I can see the announcement because this time, we were late in our announcements of the results. But if I see from the other brands who have announced the results, they have also not seen any significant improvement in the gross margins. This is the prime reason. The softening of the commodity price most have been seen after the February and March, where the -- for the brand as such or for the almost all brands, the raw materials got [ intended ] and the material starts flowing it for the [ seasonal ] purpose.Now, having said that, your valid question is the sequential drop in the margin. If you recollect, during our March investor con call and thereafter as well, the brand incurred substantial amount of advertisement expenditure during this recent period. And it goes -- if I look into advertisement expenditure, if I look into quarter -- as a percentage quarter revenue to quarter outflow on advertisement, it goes as high as 4%, 4.5%. And that gets settled down once we go down. And at the end of the year, you'll find we end up growing 3% or 2.75% to 3% of the overall turnover. So that is prime reason that some of the expenditures which are required to go on supporting the BTL and ATL activities being weaker, it impacting the overall margin on a sequential basis.The question from your side is, how should we look as we move forward to the subsequent quarter? We have been telling that the industry is becoming more competitive. Most of the brands are eying for the volume. Furthermore, the PLI scheme if you have to qualify for each of the brand players in the industry, we can see more assortment of the price on account of -- to drive the volume growth and thereby qualify for the PLI scheme. So in and all, Siddharth, we keep our stand maintain that industry will now come to a single-digit margin. None of the players probably will be seeing it going into a double-digit. And among those, even Voltas will continue to be a leader in the margin, I would not like to quote any percentage currently because we have been telling about the single-digit margin. But I would like to maintain by saying that whether I would go on that respective whatever happens, Voltas will remain leader both in margin as well as market perspective.
Got it, sir. Also, for the quarter, will it be possible to share the secondary volume growth which you have seen? Or that will be difficult?
No, no, we can share with it. If I'm not wrong, the secondary growth of the industry in the market, if I take -- generally, we take, Siddharth, from February or January to June because that's the period where different parts [Technical Difficulty] goes into a different kind of trajectory of the season and all. So if I look from the perspective, probably the industry has seen a secondary growth of around 8%, if I take January to June. But I would request, Vaibhav, we did one snapshot on that, so can you just reconfirm on those numbers, if I take January to June, and if you take April to June for that matter?Hello? Vaibhav, are you there on the call?
So Jan to June is 8%.
Jan to June is 8%, right, for the industry as such.
Yes, sir.
Yes. And that's what I said, Siddharth. So why we took Jan because you know very well, the summer in the South region starts from the September -- sorry, from the February and probably it looks like this year, although we have seen good amount of monsoon during the, I would say, unseasonal rains. But the second summer has already started, both in West and South, as I'm sure who are attending from Bombay and all, they are feeling the pinch about the second summer and all. But if I take April to June, Siddharth, so I've given you Jan to June. And if I take April to June period, the growth is around -- for the industry is around 20%.
Got it. And, sir, second on this project business. So we have continued to see [indiscernible] losses coming off in the past few quarters. Is it possible to highlight when we get back to the normal sort of margin levels going ahead? Or there are many more such provision which will keep coming up in every quarter?
Siddharth, you're right in saying that have been certain collection delays and certain other additional provisions, which we have to take. But I will assure you that these are following the conservative approach, which I can't say for another company, but we being part of a larger group. We always report whatever is the truth out there.Now, in the project business and specifically in the global markets in the Middle East, there have been certain headwinds with which -- when we are looking at our project business, we are taking those provisions. And this is, in a way, cleaning up of the whatever legacy issues or whatever would have been like even in this quarter, we have reported and we have shown in our financial statement, press release that there was an encashment which we will be fighting, and we'll be going with that. So I wouldn't say that this is something which will continue because on the other side, we have also started becoming more and more strict in our order taking and the orders are many so that it will not restrict our kind of growth in that part of the region, though, for a year or so, we may step back and look at our procedures and the way we select our partners in terms of who we work with and what kind of contracts we take and we ensure that we get payments on time because when we do our work on time, we expect our payments also to get on time and we don't want to get in a situation that once the work is done, we kind of are pushed or the payments are slow. So that's an approach or you can say it's a re-tweaking of the business a little bit and just taking the prudent approach on the numbers.
[Operator Instructions] We'll take our next question from the line of Abhijit Akella from Kotak Securities.
Yes. Just on the UCP segment, I wanted to confirm the number that you cited earlier, I think that air coolers has grown about 49% in the quarter. And if you could also please just share how much the commercial AC and commercial refrigeration parts of the segment have grown, as well as RAC on a pure-play basis?
So if I look from the commercial refrigerator perspective, we have put [ an RC ] that what we anticipated the growth actually has slightly come down. The reason being is on a higher volume base. That's the first thing. And second thing is, due to the incessant weather, the demand for these cold beverages, chocolate and the ice creams actually had tapered down. So once we see this kind of cycle, you find that the demand from the OEMs are not there and impacting the overall primary sales on the brand as such. So put together our growth in the commercial refrigerator was in single-digit. And if I look from this AC perspective, the products actually have done much better in terms of the product sales. Service revenue, which we combined as a commercial air conditioner, has seen a lower growth if I compare with the product sales. But the overall growth for the CAC business, was around in double digits and exceeding 25% to 30%.
Got it. No, that's very helpful. And then just the other thing was on the market share numbers. So when I look at the exit run rate of markets you reported for June, it seems to be about 20.6% versus last year, I think it was 24.1% as of June again. So it seems to be a decline. I was just sort of trying to reconcile that with your statement earlier that market share has actually increased. So perhaps if you could -- if it's possible to share the average market share for the quarter, both for 1Q this year and last year?
Akella, when I was saying as improved [indiscernible], I was more referring to the sequential improvement from the May. If I take from April or I can take it from March, April, May and June. Yes. If I compare with the last year June on a Y-o-Y basis, yes, the market share has done and we have been trading in to it for the last almost 8 to 9 months. So we have came down from 24% to around 20.6% now in the June exit. If I take an average market share, we are somewhere around 19% as we stand right now. There is no comparison for the last year because last year, we were running most of this period in excess of 24%. So you can say for a calculation purpose, we are running around 24% average market share in the last year. And this year, we have came around 19%, what I've just told you for that. But there is, as I said, there's a journey for it. And that's why I said some of the markets [ behave ] in a much deeper way, where we have to focus upon. The efforts are there, and we're hopeful that as we move forward, it turns out to be a result-oriented gain in all the efforts what we are putting currently.
Got it. That's very, very helpful. Just one last question if I may slip in. Just the geographical region wide split of revenues, if it might be possible to share some color on that for this year versus the comparative last year numbers?
Obviously, what I said at the -- we see that the industry has seen the tilt towards this current year. Otherwise, North, normally contributes 50% to 55% of the overall business for the industry and that even Voltas is very strong, but we cannot be far away from the industry. Otherwise, our market share we see immediately good amount of [ fall ] into that. So in an overall basis, if I look into it, the South helped in this time much better, South and East, they've inched up by 2% to 3% what they used to have otherwise. The North has dipped down and West is affected the most.
Sorry, Abhijit, Vaibhav this side. The market share for Q1 FY '23 was around 22.5%.
Okay. So 22.5% compared to about 24% last year.
No, 22.5% last year and [ average ] is 19% this year.
Vaibhav, he has asked for the [Technical Difficulty] Q1 average of last year.
Yes, sir, that is the breakup.
We have our next question from the line of Dhananjai Bagrodia from ASK.
Sir, congratulation on a good set of results. Just a couple of questions. If we see our EBIT for our EMP business, the losses -- taking in the exception of the last 2 quarters also has been equivalent to a 5-year EBIT of the same business before that. So net-net, all the hard work is not being able to be fructified. Is there any thoughts about maybe scaling down the business or even going about it slowly because 5-year business to be lost in 3 quarters is a huge number if you think about it?
Dhananjai, what you are saying is exactly the thoughts in the minds of the management are and that's a fact, I mean, the numbers don't lie. So -- but rather than scaling down the business, like I said, the opportunities are great, you have to go in with, I would say, more improved processes in terms of who we contract with, how are we contract with and what kind of procedures we put in. And those are the things which we have been doing over the last few months, and we continue to strengthen that part of our business in terms of getting the things properly, and on the execution side as the project is executed, we are very strong, and we have been in that part of the region for the last 40 years. However, certain players in that part, they have started this new thing of not paying on time and then once the project is done, then running excuses for not paying with. So those things which we need to improve it. So, I would say, it's more external, but we need to be stronger internally to face these kind of external situations. I do not want to name or be specific. But yes, it definitely does not look good that all the efforts of last few years that write off in a smaller portion. But at the same time, the part of a larger business of Voltas, we always stand with our businesses because each vertical or each segment of the business have their good days and bad days. I mean, at this time, we can say that we are facing some rough feather [indiscernible] international operations. So they are facing, yes, certain bad weather and we need to stand with them. So there is no scaling down, but it is a prudent cleaning up of the processes.
Sir, from your assumption, having seen other players also do a similar business. What are we doing wrong in this compared to other players because no one else is having this EBIT level loss? Or is it recovering? Anything which we are doing different versus them and then what we can incorporate to do something similar to them?
We are looking at other businesses also, which are in the similar themes like us in the Electro-Mechanical Projects. We have seen people facing similar problems in the business. How are they doing? Their accounting is what we would not like to comment. And like we have said that we always take a transparent approach and the prudent approach. So in the business side, we are seeing kind of similar issues being faced by others.
Okay. And, sir, would we also look at like how other players have started realizing that to go about the segment by maybe having outsourced model so that to increase our asset turnover? Is that something which we could also look at for our UCP business?
No. I don't know really what you refer to. I mean, in this contracting business, outsourcing is a norm.
No, sir, he is referring to the UCP segment. So am I right?
Okay. Sorry. I thought he was talking [indiscernible].
The project is always an outsourcing model, what rightly said by you, sir. So in case of UCP, what happens generally is, asset-light model was the key until such time we have seen or the, I would say, we have different sources to put the material thing. Now, the question is happening is, when you go on a higher on the volume side, it all depends upon how you strengthen your background or, I would say, back-end process in order to gain control on the design, as well as on the uniqueness which your product is going to differ. [ To our belief ] when we have gained our market shares this time, we could do it by virtue of our in-house SKUs, which are there in the market today in a larger spectrum and that actually helped us to go on this. We are still following the asset-light model because when we had more gone for the entire back-end or the all components getting manufactured in our own factory, we are going to outsource some of these in the -- to the OEMs and some of the import source. But the balancing needs to be done in order to, as I said, the advantage to achieving the product differentiation, design, controls and more importantly, to get advantage on the shift in the economics that you're seeing today in terms of the sourcing.
Okay, fine. Sure. And sir, any thoughts on what you all think, let's say, now this year, we've been impacted for the remaining year, what could volume growth be for, not maybe for you, but for the industry? Hello?
I missed your question.
Can you hear me now?
Yes, yes, I can.
Just a question, what do you think will be volume for the industry for the year?
Oh, you're asking me at the end of the quarter when to forecast for the quarter 4. In fact, for the quarter when the industry was expecting around more than 20% growth, but the way in which weather behave, all forecasts have come down drastically. So I would say that was let's wait for the festival fear to get over for us to access in terms of how the overall volume growth will look like.
We have a next question from the line of Nihar Dave from Vallum Capital Advisors.
Yes. My question was, since that market share has come down, like you said on an average from about 22% last quarter to 19% at the moment. Do we have any plans or strategy in mind to gain -- get back to that 22% or do we see our strategy aligning more to 19% and continue with 19%?
See, as I said, none of the brands would like to stay where they are and they make all efforts to climb up on the stairs. And that's where we are living up on. Our internal target is on a much higher side. And I would like to quantify on the call because we have to prove ourselves, which would go out in a quarter on by improving up on it and hopeful as we move in the year forward, we'll see a good amount of improvement over time.
Okay. And sir, my second question is, like you said, the gross margins are also down. Any strategy change that we're expecting that we will start pricing more aggressively like our competitors are to gain that internal target, which is a higher market share?
As I said, we always try to balance the market share and the margin, and we'll continue to focus upon it. That doesn't mean there's no price correction we have paid out in this quarter, which has gone by. But that correction was not across the entire market and across all categories or it was all SKUs. So we do balance it out, and we'll do that activity or that, I would say, in retail, we should talk about and keep our eyes close to the market. So we'll continuously follow, but we'll not -- you won't find any price correction happening across markets and across all SKUs. We balance it out to gain wherever we can and to lose the purse wherever we find it is better to do it to maintain our position in a particular market, in particular, potential territories.
So I just wanted to add that you have to remember that number, of course, we'll look at the numbers on market share, but we continue to maintain our leadership position, both in market share, as well as in the margin. See, there are certain players who tend to buy the market share by continue to keep on making losses in this segment and saying that we have the volume numbers, et cetera. So we are very alive to that fact, and we have to balance our situation. We are not here to give away our market share to anybody who wants to come in and pay to prices. So we -- according to the geography, according to the market space, we are also doing what we need to do on pricing, on other areas like we earlier mentioned, whether it will in increasing our reach, increasing our strategies by introducing more innovative products, more value engineered products to save costs because [Technical Difficulty] is always margin versus market share. And we are focused on our market share, as well as at the same time, doing a -- if somebody wants to go and keep on hurting themselves, that is their problem. We have to maintain a balance out there because we hope that will be correct view.
Yes, absolutely. Absolutely. Sir, just a small follow-up on that. So any particular regions or any particular categories that you are -- the management is more open to, let's say, being aggressive at pricing?
So I would say entire market is open still for us to play around on pricing or on the kind of product differentiation. So I would say that focus will be continuing where we have put our efforts on South side. North, anyway, we are strong. So we have to further ensure that we are not losing on that position. West and East required to be more, I would say, aggressive in terms of seizing the opportunity of the growth in the future.
We have our next question from the line of Latika Chopra from JPMorgan.
Two questions. I'm just trying to understand the construct of your revenue for air conditioner segment. The first is, if you could share what is the sales of organized retail and e-commerce in this business currently versus, say, a couple of years ago? And how does profitability metrics track for these channels for you versus a traditional dealer channel? That's the first question.And the second question is, again, just trying to understand, what is the contribution of channels that to this segment currently? Is it very different from what you saw pre-COVID? And also, the other difference in anyway the trade margins or the product margin?
So Latika, if I have to put on the -- the first question in terms of how the organized and the e-commerce have behaved. Latika, in fact, the definition of the organized trade is changing, I would say, in a very dynamic way. And once we count with the organized trade, we are counting the regional strong partners as well because what is happening with them is, they are expanding beyond their home territories. So in our terms or in the industry terms, you talk about the regional players, but they are now taking shape of the organized player as well. Otherwise, if I go to the old tradition of the organized players, I would say, I would find the modern trade, which was classified under the organized trade as such. So if put together both if I look into the e-commerce versus organized trade, they are strengthening their position in the market, making it difficult for the moment [ for stores ] for them to survive. And eventually, if retail has to drive to the Tier 3 and Tier 4 cities as well, probably over a period of time, distribution itself will convert into a retail stream and you won't find any products are hitting or being done through a distribution channel. But that's probably another, I would say, a long term or I would say, a mid- to long-term kind of market development. But otherwise, what we see today is put together e-commerce, organized trade, modern trade, put together, they have been stuck to a close to a contribution sale of industry around in excess of 20% or 25% compared to what they used to have less than 10% to 12% or, I would say, 3 to 4 years back.
And [indiscernible] is there any way influence the channel margins on a like-to-like...
Obviously, Latika, when some becomes more stronger, the monopoly principle [indiscernible], right? So it's going to be more difficult for the brand in order to serve the modern trade or the organized player and e-commerce as well. I would find the e-commerce is disrupted in the other way because they do announce 1-day sale of the bonanza sale and the price gets dropped without even consent so on the brand side. So we have to deal with it, and we have dealt in the past with all these [ nemesis ] and we will continue to deal into it. But what is more is, like if this scar getting more strengthen, it will see overall impact of cost to serve to the end consumers. And that's why you may be recalling that all brands are now putting more focus on the brand outlets, on their exclusive brand outlets, as well as their own e-commerce portal or the online channel in order to cater to the customers directly. You may not find traction currently. But if I -- as a brand, if you see the next 5 years down the line, probably this should start getting a good amount of attention from the customer as well.In terms of your second question, sorry, I missed out, what was the second question?
That is on channel financing...
Channel financing. So yes, channel financing, yes, in fact, the entire market under the channel financing undergone a change for the last 3 to 4 years. We have seen these small finance companies, credit cards and all are now getting participating in the consumer finance, seeing digital growth in this category. And these once upon a time a stronghold like Bajaj Finance, they are overall losing share into it. But if I want to put a percentage of the leaders, Bajaj is still a much higher percentage of share in this overall market. But the credit cards and all those also have almost started contributing around 10% to 12% in the overall channel financing spectrum for that matter.
So what's the total savings of our channel financing products in your memory?
So generally, Latika, you find [indiscernible] on a higher side. So if I look Q1 sale, for us, I would say that if I want to put as a percentage to turnover, what I would put a percentage to the primary because secondary data, we do analyze on an overall basis, it does goes higher as 30%, 35% now on a channel financing, which otherwise used to have 10% to 15%, if I look into 3 to 4 or 5 years back, including on a year-on-year basis. But as I said, it is not on a totally non-recourse basis. Brand only just contribute towards the substantial cost. And there also we do many times co-sell with a channel partner because at the end, and that channel is getting benefit and not along the brand.
Okay. And just one small follow-up. How many brand outlets do you have now?
We have currently around 270, and we have a much aggressive plan to expand into it.
And across how many cities now?
Across we find more on the Tier 2 and Tier 3 cities because they're otherwise metro find difficult to have, although we are planning to go for it, but then more presence is find in Tier 1, Tier 2 cities. Tier 3 is yet to catch it up in terms of the market as such.
We have our next question from the line of Keyur from ICICI Prudential Life Insurance.
Sir, first question is on the breakup of the UCP segment, either for the season of Jan to June or for the full financial year, what would be non-RAC as a percentage of UCP revenues broadly on a steady-state basis?
So, obviously, the percentage of RAC will be higher during the season time because when I say season in the sense, if I had put together CR, air cooler, and ACs together, the percentage definitely gets tilted towards the air conditioner being the large value for unit item compared to the air cooler and the commercial refrigerator. So I would say like if I have to go on a average annualized basis, you find that if I take 100 as a part of contribution from AC, CR, and the air cooler, you find that 80% largely comes from -- 75% to 80% comes from the AC, 15%-odd, 15%, 16% -- 15% to 20% comes from the refrigerator and air cooler also the volume you have find use on a higher side, but being the lower price per unit value, it contributes around 3% to 4% of the overall revenue, or around 2% to 3% of the overall revenue.
And on top of that commercial AC would be...
So I have contributed this from considering the 100 as comprising of these 3. If I add the CAC, then if the CAC becomes 100, then CAC will contribute around 20%, on an overall basis, 18% to 20%.
Okay. Understood. Understood. Sir, second question on the inventory. Since in a weak season, you have done this kind of great sales growth in UCP. Should we assume that channel inventory is normal. So what is the channel inventory and brand inventory levels as of now?
See, as I said in the answer to the first question to one of our colleagues, that the generally primary follows the secondary because if there is no secondary then primary also will face some kind of impact into it. In terms of inventory, if we are looking into -- particularly the sales which took place or which is taking place now under the secondary -- second summer. In our own [ belief ], inventory at the trade level is at much comfortable level and probably it will not go beyond even 30 to 35 days, if I put together all India business. Region-wise, it may differ, but I'm sure South and West will not be carrying huge inventory including East as well. However, the North because the season has seen some kind of setback maybe slightly having the higher inventory.
Okay. And sir, just last one clarification. On the one of the points in the results press release regarding $3.7 billion bank guarantee being asked by the main contractor. So this is already shown as of now as contingent liability since you just clarified it since it was basically main contractor asked to encash the same. So we don't believe that -- so it is continued to be a contingent liability, and we don't need a provision as of now. That is what the stand is, right?
Yes, that is -- you are correct. And that is why we have -- I mean, it has always been -- it's a case actually from many years ago, which has been going on between the original customer and the main contractor. I think no flames on us, nothing. But at the same time, the encashed -- they send a request for encashment to the bank and the bank has rightly decided not to encash it. And therefore, we have continued to keep it as a continent liability, of course, with a note clearly explaining what is the situation about that stance.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Well, I thank all of you. I think there were some very wonderful questions to get insights into the business.As closing remarks, I would like to maintain that Voltas is a national brand, and we continue to focus on our leadership positions and we are always there to provide good products at the right price to the customers and customers know what Voltas stands for. We are a national brand. We have shown in this quarter that in spite of incessant rains in all of North India, we still do a very strong growth in other regions, other parts of the country. So that's a kind of a testimony to the strength to which we can draw on. We are looking to grow this business more. The penetration levels in the country still remain low, and we are going to get the fruits of the economy growing as our current government has very aggressive plans for Make in India and all those benefits will definitely accrue with the company, and we are -- we will continue to go for it. We are expanding. We are making the factory in Chennai. So that definitely is an indication that we are there to make the most of the opportunities which are being given to us.And with that, I'd like to thank everyone once again.
Yes. Just to add on what Mr. Verma said, but this year is going to be challenging for both product and the project business, and the efforts from the management side is to continue this growth momentum and seek the opportunities whenever it arises in the future.Now, having said that, guys, I know we could not be answering to all the questions from the investor side. We are open for any Q&A session. But my only one request is, since I have some personal commitment on this next 2 or 3 days, if you have any questions, I would be able to answer them post Independence Day or post 16th of August. In the meantime, if you have any pertinent questions, you can reach out to whoever. My call may go on a silent mode because of the personal commitment that I have.Thanks a lot to all of you to spend time on the weekend to attend this investor call, and wish all of you a good weekend and extended weekend as well. Thank you.
Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.