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Ladies and gentlemen, good day, and welcome to Voltas Limited Q2 FY '22 Investor Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Renjith Sivaram from ICICI Securities. Thank you, and over to you, sir.
Good evening, all. Thanks, Tanvi. On behalf of ICICI Securities, I invite you all to discuss the Q2 FY '22 results call of Voltas Limited. We have the management represented by Mr. Jitender Verma, EVP and Chief Financial Officer; Mr. Manish Desai, Head, Corporate Finance; and Mr. Vaibhav Vora, Manager, Corporate Finance. We will have an initial presentation by the management, and we'll follow that with a Q&A. Over to you, sir.
Hi. Good afternoon, everyone. This is Jitender Verma from Voltas. As we have all seen in quarter 2, the global economic recovery has continued for this financial year even as the pandemic resurged in some or the other way because of the entry of new variants like Delta, Delta Plus of the virus.Access to the vaccine and early policy support by the central banks of the countries across the globe continue to remain principal drivers of growth. The unabated increase in commodity prices along with supply chain disruptions posed a challenge in availability of key inputs, overriding demand over supply, resulting into higher inflation. We note that although the central banks are directing their policy measures towards growth, the risk of inflation cannot be overlooked.IMF has reaffirmed the growth projection for India for financial year '22 to be at 9.5%. Albeit, in India, persistence of supply-side disruptions and surging commodity prices, including crude oil, pose adverse risk to both growth and inflation. This has also led USD/INR to depreciate, which is trading above INR 75. Some central banks have started reversing pandemic stimulation, although most are still doing it gradually. RBI has embarked on liquidity and rate normalization over 4 to 6 quarters, which would even flatten the yield curve. Despite these headwinds, quarter 2 showed a positive pre-festive year reflected by growth in GST collection and IIP numbers.In our business, the pent-up demand in Unitary Cooling Product segment helped us post a growth of 5% in income from operations at INR 1,669 crores as compared to same quarter last year. Profit before tax saw even a higher growth over 24% from INR 115 crores to INR 143 crores in current quarter. Nonannualized earnings per share for the quarter was consequently higher at INR 3.13, ahead of the previous year, which was at INR 2.37.The corporate balance sheet continues to remain healthy with minimal borrowings, which are required mostly for our overseas operations. While operational cash flow during the first 6 months have been weak given the context of the second wave lockdowns and sales loss of consumer durable production high season for the second time. Availability of liquidity on our balance sheet continues to be a definite strength for Voltas.Our snapshot of our results this quarter is presented herewith. Our revenue is in 3 segments. Our main segment, Segment A of Unitary Cooling Products contributes about 60% of total revenue for Voltas stood at INR 1,007 crores, higher than same quarter last year, which was at INR 750 crores. The Segment B, Engineering Projects, stood at 32% of total income from operations at INR 536 crores. Segment C, Engineering Products, contributed 8% of total revenue, stood at INR 135 crores in comparison to the previous, the same quarter previous year at INR 93 crores.Our profit before tax for Segment A, Unitary Cooling Products, stood at INR 102 crores, higher from the same quarter last year of INR 86 crores. This is 10.1% of the revenue from the same segment, which was lower compared to the same quarter last year at 11.42%. Segment B, Engineering Projects, we reported an INR 11 crore profit, PBT in this quarter. The same was 0 for the quarter, same quarter last year. In Segment C, Engineering Products, reported a profit of INR 39 crores compared to INR 29 crores same quarter last year. All in all, the profit before tax for Voltas as a whole was INR 143 crores compared to INR 115 crores same quarter last year. This is 8.56% of total income from operations as compared to 7.24% for the same quarter last year.In terms of our divisional performance. In Segment A, Unitary Cooling Products, a swift recovery post opening of the regional lockdowns after the second wave, pent-up demand ahead of festive season and multiple offers to consumers helped this business segment register a growth of 34% during the quarter. However, erratic weather and incessant rain in later part of the quarter witnessed in many parts of the country closed the sales momentum gained in the beginning of the quarter.Segment achieved overall volume growth of 24%. We continue to sustain market leadership position in room air conditioner business with year-to-date August market share of 25.9%. Focus on the inverter subcategory with competitive pricing and increased number of SKUs ended in favorable outcome. Inverter ACs registered a growth of 40% in quarter 2 financial year '22. Contribution of inverter ACs within overall ACs increased to 54% in quarter 2 against 46% in quarter 2 last year.Focus on strengthening contracts with OEMs and new product expansion helped growth of 31% in commercial refrigeration vertical in quarter 2. Both OEM and retail segments have registered growth consistently over past few quarters. Focused efforts on expansion of dealer network, expanded product portfolio in each of the subcategory and launch of new SKUs reported a growth of 78% in the product categories.As informed in Q1, the expected cost of freight in 2021, the group had reorganized the reporting of commercial air conditioning and customer care business from Segment B to Segment A. This was to align with our business objectives. Resumption of commercial activities, along with high retention of customers and enhanced focus on after sales service, resulted in healthy growth of this commercial air conditioning business in quarter 2 over the previous year.In addition and in continuation of our efforts to be customer friendly, the company has also launched an exclusive online web store with the URL www.voltaslounge.com in this quarter. This web store comprehensively showcases the consumer products lineup from the overall Voltas.Better product mix, coupled with planned procurement of inventories, helped to partially mitigate the increased cost of commodity prices and higher logistics costs. However, acceptance of price increase from trade continues to be a challenge, resulting into a moderate drop in the overall margin given a lag, given a time lag in passing of the input costs. In spite of this, segment revenue increased to INR 1,007 crores as compared to INR 750 crores in the corresponding quarter last year, an increase of 34% year-on-year.Second, results were higher at INR 102 crores as compared to INR 86 crores in previous year. During the quarter, Voltas made an application in government-announced PLI schemes in low-value intermediary with large investment category with a committed investment value of INR 100 crores. We plan to manufacture various components at our Waghodia and Pantnagar plants with the objective of strengthening the supply chain.Segment B, Electro-Mechanical Projects and Services. Construction activities continued to be allowed in the current quarter. However, erratic climatic conditions lowered the progress in execution of some of the projects. Segment revenue for the quarter was INR 536 crores as compared to the previous corresponding quarter of INR 744 crores. However, segment reported a profit of INR 11 crores despite delay in work certification, time-based and other conservative provision. The domestic project business performance was satisfactory given the weather-bound conditions. The carryforward order value is INR 3,426 crores spread across water, HVAC and urban infra activities.Some of the high-value order projects are nearing completion for international business. The pace of the execution was better. However, the certification of the work remains slow. The order inflow for the quarter was at INR 272 crores, largely in the United Arab Emirates. The carryforward order book is INR 2,377 crores, representing MEP work, mainly in United Arab Emirates, Oman and Qatar.Segment C, Engineering Products & Services. Segment revenue and results for the quarter were at INR 125 crores and INR 39 crores, depicting a strong growth of 34% and 36%, respectively. Both our Mozambique and India operations have contributed to this performance, backed by renewal of the contracts as well as strong order book of crushing and screening equipments.Growing exports and extension of export incentives has pushed demand for screening and post-screening capital machinery, which has contributed significantly to the bottom line for this vertical. However, a price increase announced by almost all the post-screening principals with the stressed supply chain may pose some interim challenges. Announcement of much awaited PLI scheme for textile industry is also expected to boost the sentiment for the capital machinery industry.Voltas Beko. Our JV, Voltas Beko, continued its journey of product expansion and providing value for money products to the end consumers. As part of increasing localization, the production of its top load washing machine has commenced at existing Sanand factory in Gujarat. Further growth by the demand from the channel partner for the direct cool refrigerator, the refrigerator manufacturing capacity of our units will further be expanded, which will also improve capacity for frost-free refrigeration category up to a certain unit range.Voltbek's products continue to be accepted well in the market and witnessed a significant demand pull from the trade. We report Voltbek's market share of 2.7% and 2.6% year-to-date in this highly competitive segment of refrigerator and washing machines, respectively.In terms of distribution, billing points have been scaled up to exceed 1,400 for Voltbek. Accelerated opening of exclusive brand outlets, EBO, and experience zones, along with cost-effective digital marketing, should help in increasing reach and augmenting brand visibility. Distribution and other synergies with Voltas continue to be aggressively leveraged to achieve the overall objective of targeted market share.Outlook. As we move into quarter 3, we are witnessing healthy sign of economic activity, followed by a double-digit growth in consumption and GST collections are topping INR 1 lakh crores per month and recovery in both manufacturing and services PMI. The festival fever is approaching and Voltas has launched Mahotsav, a combination of various consumer-led schemes, including extended warranty, attractive product exchange and exciting finance scheme, making purchasing even more attractive for customers.In terms of readiness, we remain well poised to seize all available opportunities to profitably grow our business in a sustainable manner. While the cost push price increase is inevitable, we remain positive on overall growth. Going forward, in our project business, we will continue to focus on building our order book following a cautious and risk-mitigated approach.A further pickup in pace of infrastructure activities can reasonably be expected in the coming quarters. Various processing improvements, cost control measures and efficiencies, which were strengthened over a period of time, provide a degree of comfort on future outlook. Project execution and related challenges will continue to be monitored globally.With this, we thank all participants, and we may open for a question-and-answer session.
[Operator Instructions] The first question is from the line of Ravi Swaminathan from Spark Capital.
My first question is with respect to the room AC revenues in the UCP segment. Can you give a sense on the 2-year CAGR in terms of either volume or revenue for the room AC segment, that is this quarter's revenue compared to 2Q FY '20?
On the revenue side, we see a positive growth compared to FY '20 up to now. And I would say it's in double digits, I would say, high double digits -- sorry, high teens.
That's on an absolute basis, sir, or CAGR?
CAGR. For the CAGR, about 18% to 19%.
18% to 19%? Okay. And we have -- hello.
Sorry, we lost the voice, you'll have to repeat your question.
Yes. And on the commercial air conditioning business, which we have clustered with the UCP business, if you can give the revenue or what percentage of the overall revenue of the UCP segment we did for this quarter?
This overall percentage for this quarter, we are not disclosing at this stage, so I'll have to defer that question.
And margins, EBIT margins have been slightly on the weaker side compared to last year, obviously, due to commodities going up, et cetera. How do you see it going forward? What are the efforts that we are taking to mitigate margin pressure? And would we go back to last year's level?
Our general guidelines, I mean, these margins also have dropped, but they remain within the general guidelines. So how the cost push will happen and what's going to happen in the market is something which we'll also have to monitor as we go along. Up to now, we have seen that there is generally a tendency to say no to the price increases by the channel partners, but slowly and steadily, everybody accepts that these price increases are inevitable.And although we are a price leader in our segments, we see that we still continue to maintain our market share as well, which means that we should be able to manage this going forward also. We have achieved certain value engineering also to cushion the impact of the cost increases. And also with our judicial purchasing, we are able to monitor and control our prices within the range.
Got it. And with respect to the project business, so the order book has been fairly on the weaker side. So is it like we are consciously avoiding a few orders, low-priced orders or something of that sort given the fact that infra activity seems to be right on track?And my second, there is a question within that is, are you seeing increased activity in Middle East because of the rise in oil prices?
Sorry, your voice was not very clear. Could you repeat your question?
So with respect to the project business, our order book has been slightly on the weaker side. Is it because of the fact that we are kind of being cautious with respect to orders, which probably might be on the lower margin side? And with respect to the same project business in the Middle East, oil prices are going up. So are we kind of looking at improved ordering activity there?
Okay. For the project business, I mean, I would see that there is a slight weakness in the carryforward orders, but still it's very strong, healthy. If you add up the 2 numbers, I think we are close to INR 6,000 crores worth of orders in hand, which is very strong.We see that we are selective in what orders we take. We are selective on the contribution of the orders as well as the credibility of the contractor from whom we are going to deal with, the credibility of the customer. Mainly because of the fact that in the past, there had been situations where we have to take heavy provisions, and so therefore, credibility becomes a criteria for us. We are going more and more for government projects, which tend to be slow to come forward. And we are also being choosy on that.On the international side, just because of the fact that oil prices are increasing, we cannot say that the number of projects will increase because there are many other factors which are in the play, specifically in the contracts in which we participate. But still, we see a healthy growth, and it should be positive for things too as we see it going forward.
The next question is from the line of Siddhant Dand from Goodwill Investment.
[indiscernible] AC brand, with the retail that is Croma, they've been using the Tata brands and selling ACs under their own private label. And I don't think it is very healthy because it resets the entire AC segment of the [ Voltas ] brand ourselves and they're cannibalizing it. So would we be taking any action or something?
Siddhant, this is Manish over here. The general partners, the e-commerce partners and all are anyway selling the products under their private label brand. And in a way, we cannot stop them to do that, another free trade policy of the agreements what we have. What we are saying is, whatever the products, the sale of the Voltas, we always maintain the market operating price level to the end consumers. But in terms of the private label brand, you have seen that even Reliance was having their own private brand including...
It's the Tata Group company.
Pardon?
It's the Tata Group company that is cannibalizing.
Yes, yes. But then it's a free trade policy we have. So they can keep their private label brand. But any which way, what we have gathered data from the market, the traction of the private brand is very much low. And since the import model is now getting banned, we all know that for them to have the -- or for any player to have the business model of import and put on the shelf is not commercially viable given the regulation changes done by the government. We may see that the brands will be losing their strength in their businesses.
Okay. Perfect. And we don't plan to tie up with Croma because we are under them anyway?
When you say tie-up, we do have a tie-up. Our ACs are being displayed over there, but all products are being displayed over there.
Okay. But not with Croma.
We cannot stop them not to display any other brand, including their own private label brand. It's all matter, Siddhant, of what shelf space you're occupying it. And I'm sure when you walk into any other store or compared to the units which are put on the shelf, you find that we are occupying reasonably a larger shelf on the retail outlets.
The next question is from the line of Sandeep Tulsiyan from JM Financial.
Firstly, again, harping on the same point. If you can share with us a brief mix of the UCP segment between RAC, CAC as well as commercial refrigeration for 2Q as well as first half? Just to make it easier for us to compare numbers and growth.
Sandeep, we may give these numbers, but I was really surprised because investors have more data with them. And since our last quarter 2, if you can compare, it was without CAC part of the UPBG, someone can easily make it out. But now going into the UPBG as a part of the CAC. But any which you are to go on the lighter side on this call, roughly around approximately 20% of the contribution is coming from the CAC business to the overall UCP segment, what we are reporting. It fluctuates quarter-on-quarter because unlike the season product of the air conditioner, commercial air conditioners, it all depends upon how the commercial market is moving, besides their contribution towards the revenue and the bottom line.In terms of the commercial refrigerator, the [indiscernible] is down. We have stated over in our opening remarks, it is consistently growing quarter-on-quarter. It is occupying somewhere around 20% of the overall turnover of the UPBG now, close to 20%, I can say for that now.
So 20/20/60 is the mix. Got it. So this is for second quarter or first half?
Put together, almost it’s same over there, so nothing much.
And secondly, in terms of order book, was this segment also order book driven or -- because when we split, the order book kind of it did not get restated for last year from that...
Yes. The CAC business does go based upon the order book because generally, the contract period of this commercial air conditioner is more than even 6 months. So many times, it's driven by the order book.
So I would request if we can share historical data for order book for this segment also? That would be welcome.
Okay, Sandeep. Point noted, and we'll share with you subsequently.
Last question is on the Voltbek side. Would you be doing any guidance on sales or where do you see these losses getting capped in the current financial year?
So if I look from the Voltbek side, as I said, the Voltbek is expanding its footprint. It is difficult to give any, difficult to compare with the growth in the system because it has to be on a higher side. And once you have the scale with you, definitely, it will result into the operational synergy. And by virtue of that, loss will certainly come down on as we move forward.The increased loss what we are seeing today in the results is largely on account of some kind of sales promotional activities what we carried out in the quarter, coupled with the increased cost pressure because there's a time lag between the passing of the increased input cost to the consumers. So it's the impact of both of these factors. Going forward, since all brands are going to have or the price increase is inevitable to match or to compete with or to pass on the increased input cost, we see some kind of moderation is coming into in terms of the results of Voltbek.
Got it. And lastly, any thoughts on the industry volumes? Where do you see the industry volumes going in FY '22 this year as compared to FY '20 where they were? That's my last question.
So if I see, if I look from the FY '22 perspective for air conditioner as a category, the industry may end up with a 10% to 11% growth over FY '21. However, in terms of the FY '20, we will find that the level coming closer to what we had in FY '20. So you won't find a good amount of growth coming compared to FY '20, but certainly a growth in double digit when we compare with FY '21.
The next question is from the line of Ankur Sharma from HDFC Standard Life Insurance.
Firstly, on the project business, sorry if I missed that, but the sharp decline in top line that we’ve seen this quarter, what is that driven by? Is this [indiscernible] fees, just to understand a little bit more on what's happening there? And more importantly, how do you see the next 2 quarters, does it kind of rebound?
Yes. In this quarter, it's mainly driven by the weather pattern. As you see, the onset of monsoons, specifically in the Indian part in our domestic business, it creates -- traditionally, quarter 2, it tends to be lower. Now this got coupled with the fact of certain slow executions coming from the lockdown in the previous months. We should see this rebound activity in quarter 3 and quarter 4.On the IBD side or our international business side, we saw that certain of our bigger projects were coming to the conclusion. And therefore, the numbers of the activity top line showed a little lower compared to the same quarter last year.
Okay. Fair. So essentially, it's more weather-driven, but you don't see too much of -- the recent slow execution as well, is it more cash flow driven from the consumer side? Is it are you not focused on cash making you go slow? Is that also one of the reasons or you believe that the schedule of projects is…
It's more like a rescheduling of projects.
Fair. Okay. Second, I think you spoke about participating in the PLI and are looking at INR 1 billion kind of investment to make components. So what exactly are you looking to manufacture? What kind of capacity or targets you have in mind, assuming you are eligible under the PLI scheme?
Ankur, in fact, we have applied for a component with the category which we have just talked about it. Probably we would like to give more details once the outcome comes from the authority in terms of approving our application because it will be not fair to speak right away because of the outcome -- because it will be, the industry will or the ministry will finalize at least by November 15 in terms of the application of what we make.But what we spoke, what we had a communication earlier, it is to talk about the components. Largely, it's covering the coils and some of the plastic components. And in terms of the capacity, we may like to have almost 50% of the capacity or 50% of our annual requirement comes up in the Phase 1, while we are looking for such kind of backward integration.
50%? Okay. Fair. All right…
And we have, Ankur, as I've said, this is where we are eyeing for it.
Okay. Understood. Sir, thirdly, you guys talk about price hikes with some resistance to pushing through price hikes on the channel. If you could talk about what have been the price hikes YTD this calendar across the room AC portfolio and if any more are planned given the way iron costs have moved?
Ankur, if I take from the base of the last year, the price increase, what we announced so far will be in the range -- in excess of 10%. It hovers between 13% to 15% over the last year when I take quarter 2 of the last year.Now since we are not seeing any downward trend for the commodities, which means that all the new models which we are getting into the inventory because we all know, the industry will start preparing for the new season requirement of the '22, '23. And therefore, the all new material, which will come, will be coming at a slightly higher cost.Obviously, when we come to the material -- the input cost is increasing, we have to find a way to pass on this cost to the end consumers. And this, being a leader in this industry, we further announced a 3% to 5% increase in the month of October.When we talk about the resistance of the channel partner, the prime reason behind is because we are in the midst of the festive season. Furthermore, we have to look into the competition landscape as well because the competition is not probably in a matter of removing or liquidating some of the old inventories, can be not as aggressive in terms of price increase what as the leader we are doing it, but that's where the resistance of the channel partner comes from.But we are reasonably confident that sooner or later this becomes a reality for every player if the objective is to have a healthy and sustainable growth, both in revenue as well as in bottom line.
Okay. Fair. And just one last one from my side. On the demand and the mix of demand, more importantly. So, a, how is festive demand? Are you seeing any slowdown? Or is it kind of as per your expectations? And more importantly, what we see in other categories is the entry-level products actually are seeing -- mid and premium doing better. So is this something you mostly see in your product mix where you're seeing less of economy orders and more of say the higher-rated inverter segment?
So Ankur, for the growth number, which you have just spelled out, it is over the quarter 2 of 2021. And we all know that quarter 2 2021 has given a growth over quarter 2 '19, '20. So you can say that demand is there in the market because we are seeing consistent growth in this quarter 2 over the last 2 years as such. So there is no -- I can say the products are available to the consumers and consumers are coming to the retail shops for the various reasons. So demand, we are not seeing any kind of taper in the demand. And we believe that it will continue or we expect it should continue in the year -- in the months to come.As far as between the SKUs, if you look from the low-, mid- and high-priced kind of SKU planning or projections for that matter, we have seen some kind of upward trend in the 5-star categories, which has seen some kind of higher offtake from the consumers. Largely, it’s coming from the macro and Tier 1 cities. But entry-level product are also doing well. So in and out, I can say that all the entry as well as the mid and the premium segments are showing reasonable growth over the last year.
The next question is from the line of Praveen Sahay from Edelweiss Financial.
So just on the RAC segment. Can you give some light on the channel inventory on the sector front? How is that and how that's shaping up?
So if I look from the channel partner perspective, definitely, it's a festive buying, and nobody would like to lose their sales given there is an uncertainty in the supply perspective because of the supply chain disruption. So to our reading, the inventory with the channel partner will be close to 45 days today, although some of retailers had got into a discipline or filled up the shelf based on the demand. But given the supply chain disruptions, the average inventory across all channel partners is in the range of 45 days.
Okay. And if you can compare with the last quarter, how is that?
Probably, we have seen the moment the growth is visible in the sector, I can say, or in the categories. Obviously, the confidence of the channel partner is growing. And when it's growing, definitely, they would like to move on a -- slightly better on an inventory front rather losing out the business during the peak time.So if I compare with even last year similar period because we have seen a growth over last year. So obviously, the inventory level remains almost at 30, 45 days level, where it was there in the last quarter -- last year as well. I hope you are referring on quarter 2 of the last year, right, and not the Q1? There is no comparison between Q1 and Q2.
Yes, correct. And the next question is, sir, related to inverter AC contribution for this quarter, how much is that?
It has touched to 54% within the overall air conditioner category.
The next question is from the line of Keyur Haresh Pandya from ICICI Prudential Life Insurance.
Sir, first question is on the pricing. So should I assume there is any disparity between price hikes from top 4, 5 players or 5, 6 major players? And just in context of steel rising, input prices, I mean, even to date, today's date, how do you see margin going forward? Should we see even a blip on the downside even for a quarter or so?
See, if you look from the -- I would not like to argue or we would not like to comment about the pricing policy followed by the competitor because everyone will look after their own business in that sense. But what we are seeing and what if I look from the Voltas perspective, although there is a time lag in passing out the increased input cost vis-a-vis what we have done so far on the price increase, the impact what you can see today is hardly 140 basis points, which means that with the various value engineering initiatives, doing efficient supply chain and bringing vendors on par with our terms and conditions, we could arrest or we could do better in terms of managing the risk on account of the result to revenue ratio.We are not going to limit up on this. Definitely, we are going to work more aggressively to ensure that. Although there is some kind of price lag or time lag -- will continue, we will be continuing to drive our margin. We may not reach to last year because we already told that 15.1% what we have been referring to was an exception because the lot of cost which otherwise we would incur to have a product visibility on the ground was not incurred because of the complete lockdown. But our guidance which is there to have this continuous double-digit margin, and we'll definitely try to stick to the extent possible.
Okay. Now sir, I did not want to go into, say, competitor pricing. I just want to understand whether there is discipline or not because their pricing will determine our ability to take price hike also.
See, I would not like to say discipline because someone has to make a move early, right? Okay?
Correct.
And then when you wait, then you can't say that Voltas has made the first move. All other players are moving, but other players are moving between the gap of 15 to 30 days or depending upon some market, maybe for SKUs, not for all across the SKUs and all. There are various variants because if I want to talk about the price, price is a dynamic factor here. I can go to SKU. I can give to the market. I can go to a particular category. And if decide so, I can go to -- across all markets always to put together. So you find, the aim is to say that wherever we can do or wherever it's possible for us to pass on the increased input cost, we won't leave that opportunity.
Okay. Perfect. Sir, second question is on the capital employed. If I see sequentially, in UCP business, we have seen flattish or kind of slightly increasing the capital employed even in a lean season. What reason can we assign to, say, higher capital employed in UCP?
This is, in fact, if you look from the quarter 2, there is an improvement in the working capital compared to the last quarter 2. But generally, if you are -- in terms of the components of the capital employed, inventory plays a larger role because we are in the seasonal kind of product category, although we get a good amount of extended trade from the suppliers, but any disruptions like COVID and all will not make good of whatever trade you get from the supplier perspective. And that has resulted into a slightly increase in the overall capital employed for the UCP segment. But if you want to compare with the quarter 2 last year, I'm sure our numbers are giving a significant improvement over quarter 2 of the last year.
Okay. Understood, sir. Sir, just last one question on the Voltbek side. So as of now, which are the products that are being imported? And eventually, what -- I mean, any specific time line when they would be say indigenized or just own manufacturing or OEM within India?
So today, if I want to give you a perspective after being plan to have a frost-free refrigerator also manufacturing at our Sanand plant, probably 2 SKUs of the frost-free refrigerator about a particular literage and microwave and the front-load washing machine only will be import sourced. The rest largely all products will be indigenized.I'm not talking about the dishwasher because dishwasher also largely considering the volume has been outsourced through import. But once we have the washing machine line, the channel can be or the manufacturing plant can be configured in such a way that if you want to go for a dishwasher, it is still possible to make dishwasher based upon the volume and the scale of what we are aiming for.
So front loads are now manufactured in India only, front load and top load fully automatic?
Top load, top load. Top load are -- top load washing machines are getting manufactured in India. So in case of -- let me put category-wise. In case of refrigerator, you have a frost-fee refrigerator above a particular literage will be import driven. In case of washing machines, you will find that the front load washing machines will be outsourced through import. Although once we have the scale, achieving washing machine in our factory, we will plan to convert the front load also going forward as a totally indigenized product.Microwave continues to be outsourced. And when I say outsourced, it is import outsourced because in case of even semiautomatic washing machine, we are not manufacturing within factory because the plan is to go on a top load washing machine and the front load seeing the volume and other stuff. Semiautomatic, it is indigenized but with the help of through our OEMs.
The next question is from the line of Abhilasha Satale from Dalal & Broacha.
I have a question on Kigali agreement. So India has signed the agreement for reduction of HFC-23, HFCs for FY '24. So what would be the impact of this in terms of our production? Will there be any effect because of phasing out of the HFC-23? This is my first question.And the next question, I want to know the utilization level of our Sanand facility? And how much work for refrigerated? And how much do we expect it to reach by the end of this year?
Abhilasha, I could not get your second question. Can you just repeat it?
I want to know the current utilization of our Sanand facility for the refrigerator, yes. And how much we want to increase it by the end of the year?
Okay. So Abhilasha, in terms of the HFC, let me answer that. We cannot wait for the end date. So all our air conditioners today have been migrated to a less pollutant or kind of less ozone-subsidized kind of refrigerant which we sell as the R32. So all our air conditioner in the last 18 months got migrated from R22 to R32 refrigerants. So we have been fully complied with it with the CapEx, with the minimal CapEx what we incurred at our production facility. As far as the -- I hope this answers the first one. So then I can move the second one.
Yes. Thank you.
Okay. And for the second question, the refrigerator. The current, what we are doing is we are producing almost 50,000 refrigerators per month, which we are taking up to 75,000 in the existing setup itself. Our plan when we try to have the frost-free refrigerator also up to a particular literage, we'd like to expand this capacity close to 1.1 million in the near future.
[Operator Instructions] The next question is from the line of Bhoomika from DAM Capital.
Sir, on the project segment, we've seen there's been extra provision, which has kind of pulled down the margin for the last couple of quarters. Now when do we see the execution kind of normalize and margins reverting to normalized level of 6-odd percent?
Bhoomika, if I could have seen this future, I would have given you a date by which quarter by which it will get normalized. What is happening is the -- maybe you can say the Voltas is putting a very much conservative policy in terms of certification or in terms of any provisioning norms. But we believe that it's a prudent one because we are seeing some kind of delay even in certification work with the [ job with the Indian ] buyers. We have to cautiously take it up this kind of provision.In terms of the margin going back to a 6% level, I will say it may take some more time. We have touched to a 4.4% in quarter 1 on account of our lower execution of the projects on some of the sites. We have come down from that level. However, in terms of future, probably we can say we'll be taking another 3 to 6 months' time frame minimum before we see a light of 4.5% to 5% margin. 6% margin, we are also optimistic about what guidance we normally used to give. However, given the situation today where we are, probably it may take slightly longer time to go back to a 6%, 6.5% kind of trajectory.
Sure. And in terms of...
Sorry, Bhoomika. One thing is very sure that the kind of projects which we are taking today are well risk mitigated with the foreseen risk what we are seeing today while picking up the project. If something will come out unforeseen situation, then it will be difficult to predict right now. But all foreseeable risks today have been properly mitigated while tendering for a new contract. So that way, we are adequately covered for ourselves for all such kind of eventualities of delay in certification or likely to the [ industries ] or whatever you can see from that perspective.
Sure. And in terms of new order inflow because it's been kind of weak in the last couple of quarters. When do we see that kind of going back to a quarterly run rate of, say, INR 1,000 crores, INR 1,500 crores? And from which areas are you seeing it both in domestic and in international markets?
So generally, Bhoomika, if I look from a domestic market first, there are various projects in pipeline for which the tendering is underway. It all depends upon, are we qualifying when we bid for it. But then if it happens, so then probably in the quarter 4 also, you will find that we are back on the order book or a healthy order inflow for the particular peer for that matter.But if I still compare with where we are last year in the current quarter, probably we have slightly improved upon it both on the domestic and international projects. However, the quantum of project is not worth to talk about it. But still, as I said, we will be striving for balance between the order inflow as well as the risk which we are carrying in our books of accounts.But if I look from the international project perspective, we have secured almost INR 272 crores of order inflow in the current quarter, although it's pretty much lower than compared to average what we have. But if I compare with last year, similar period, it is still above or significantly above the amount of order which we bid or we took in the last quarter.Quarter 3, quarter 4, seeing some good amount of traction coming on the order book side. But as I said, we will be definitely weigh against the kind of risk which we are carrying. But we're hopeful that at the end of the FY '21, '22, we may see order book growing to a reasonable level what we normally have as the past experience or past kind of performance.
Sure. Makes sense, sir. Sir, on UCP, just one question is, you spoke about putting up a 50% of annual requirement in Phase 1 in terms of inhouse manufacturing, plus the components which we'll be doing in the -- for the PLI scheme as in whatever gets kind of approved based on whatever license is given by the government. Now is this a bit of a strategy change where we were kind of outsourcing a lot and now we're getting into our own inhouse manufacturing with very limited outsourcing? is that the way to look at it?
Bhoomika, see, this is a long-term supply chain management plan of the company. And this has been already visualized. It just got accelerated because of the fact that the government of India has increased the custom duties and the PLI scheme has already come in. So in that sense, it's an existing plan where we were always looking to indigenize and nationalize our manufacturing capability. It's part of the same plan, just got accelerated.
And when I said 50%, it will come in phases, Bhoomika, but the plan is to reach to a particular level.
Due to time constraint, we take the last question from the line of Ashish Jain from Macquarie.
Sir, my question was on pricing. So we indicated that we have taken 3% to 5% price hike in October. And with that, are we now totally covered with the commodity inflation the way it stands today or we will need more?
Definitely, we would need more. However, we have to wait and watch how the commodity prices are going up. We are right now in the midst of our contracts with our vendors for the next season, next year. So once those contracts get concluded, we would be able to confirm how it would be playing going forward. But price increase, looking at the way the prices have increased, seem to be inevitable and other manufacturers may also have to look at the policies in the same direction.
How do your contracts work with your domestic and global vendors in terms of the input cost and all? Is it like quarterly reassessed? Or is there any standard policy around that?
In the continuous increase in the commodity price, none of the contract gets annulled. If I'm seeing this commodity increase once in a quarter or something like this, then people do consider to have a price increase at the time of renewal. But if you're seeing that every weekly price of the commodities is inching up towards the northern side, obviously, whenever you try to place the order at the old price, it further goes into a negotiation, the rate revision for that matter. Although we balance it out in a very sensible way, but end up -- somewhere you have to end up doing balancing between your need as well as what the price you are trying to complete with them.
Right. Sir, secondly, in terms of the volume outlook for fiscal '22, you spoke about like 12%, 13% kind of growth versus fiscal versus the last year. If I look at 1H, we have grown 19% in 2Q; we grew around 11-odd-percent in 1Q. So are we calling for like a high single-digit kind of growth in the second half from a volume point of view in the [ RDC ] business?
Ashish, I talk about the industry growth. I've never spoken about the Voltas growth.
Thank you. I now hand the conference over to management for closing comments.
Yes. So the thing to add about it, the market is competitive. We have to and the festival season is around us. The growth factors are there, and we expect that the pent-up demand, what we have seen in the quarter 2 should continue. The underlying factors in terms of penetrations, in terms of value aspiration from the end consumers and the millennial population what we have, we are hopeful that the industry will clock a double-digit growth in the '21, '22 over 2021.On this positive note, I would like to thank all the participants and wish all of you a happy and prosperous Diwali. Thank you very much.
Thank you very much. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us and you may now disconnect your lines.
Thank you.