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Ladies and gentlemen, good day, and welcome to the Voltas Limited Q3 FY '18 Earnings Conference Call, hosted by SBICAP Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhineet Anand from SBICAP Securities. Thank you, and over to you, sir.
Okay. Hi, welcome, everyone, to the third quarter FY '18 post conference call of Voltas. The management is represented by Mr. Abhijit Gajendragadkar, CFO; Mr. Utsav Shah, Head Corporate Finance; and Ms. Asawari Sathaye, Senior Management, Corporate Communications and Investor Relations. I will hand over to the management.
Good afternoon, everybody. We present to you analysis of results quarter and 9-month period ended 31st December, 2017. Global economic growth has been broad-based with growth upside across Europe and Asia from the second half of 2017. In the U.S., tax policy changes are expected to stimulate activities over next few quarters. Crude oil prices have increased due to improving global growth outlook, OPEC arrangements and geopolitical tension. Copper and aluminum prices, which were on an increasing trend has moderated in the recent past. In India, the economy is coming to grip with the after effects of GST, or the Goods and Services Tax rollout and demonetization. There have been a few green shoots of recovery, mainly a stronger rural economy, and pickup in consumer demand. Growth in core sectors is driving the growth in the IIP, which was 8.4% in November 2017 year-on-year, with the manufacturing index growing at 10.2% in the same period, and inflation, CPI, November '17, 3.9% year-on-year. The Finance Minister in the recently announced national budget focused on electrification, the Saubhagya scheme; road construction and infrastructure, the Bharatmala scheme; and cleaner water, the Namami Gange scheme, among others, which are expected to result in relevant project announcements. However, private sector spending continue to remain subdued. During the quarter, Voltas achieved consolidated turnover of INR 1,365 crores and profit after tax of INR 100 crores. We present below our comments on the performance of our business segments. Segment A, Electro-Mechanical Projects and Services. Segment's revenue for the quarter was higher by 7% at INR 753 crores as compared to INR 703 crores in the corresponding quarter last year. Segment result was also higher at INR 53 crores, reflecting a margin of 7%, coming from better quality carryforward orders and efficient execution. Order book of the segment stood higher at INR 4,850 crores as of 31st December, 2017 as compared to INR 4,200 crores in the corresponding quarter last year. International operations. We have recently been awarded MEP Contractor of the Year in Dubai. We continue to be considered amongst top-tier MEP contractors given our track record of executing projects. Projects spend relating to Expo 2020 has now started picking up with projects being awarded to main contractors. We are beginning to win suitably risk-mitigated orders and our order backlog is INR 1,750 crores with order inflow of INR 330 crores in the quarter. Better project selection, execution and cost management have led to improvement in performance. As you are aware, Carillion plc, a U.K. contractor, has filed for compulsory liquidation in January 2018. The company's branch in UAE and its joint venture company in Oman are currently executing MEP projects as a subcontractor, wherein Carillion plc is a joint venture partner of the main contractor. Based on the initial assessments done and contractor remedies available, the company does not foresee a material risk to its due under these contracts. Some delays in receiving certifications and payments may be experienced. The total contract assets for these projects are around INR 177 crores as of date. We are monitoring the situation through continuous communication with the client. Domestic projects. Our strategic focus is on government projects and good quality orders. Pending order book stands at INR 3,100 crores. Domestic projects booked INR 225 crores of orders in the quarter, with majority of orders coming in from infrastructure space. The recent announcements in the national Budget 2018 is expected to lead to increase in opportunities. Improvement in internal efficiencies and productivity will continue to be the drivers for growth. Segment B, Engineering Products & Services. While the results for the quarter was higher by 5% at INR 21 crores in comparison to the corresponding quarter last year, the revenue for the quarter was lower by 14% at INR 70 crores. Performance of this segment was mainly impacted due to slow down in Textile business due to lingering effects of GST, combined with changes to export incentive schemes, increase in international competition and yarn price volatility. Notwithstanding the above, the division has adopted a smart approach on increasing the scope for post spinning, value-added services, accessories and allied machinery. In Mining & Construction Equipment, Mozambique operations continue to drive the performance. Mining activity in India remains tepid as re-auctioned mines are yet to commence operations. Meanwhile, the government announcement in the recent national budget on increasing spend on road infrastructure, the Bharatmala project is expected to spur demand for crushing and screening equipment. Segment C, Unitary Cooling Products. Segment's revenue increased by 32% to INR 542 crores in this traditionally lean quarter. This was due to prebuying in the current quarter due to changes in energy efficiency norm for fixed speed air conditioners from 1st January, 2018. Segment's results improved by 62% to INR 70 crores from INR 43 crores in the corresponding quarter last year. The Voltas brand continues to be the undisputed market leader and has sustained its #1 position in the room air-conditioner market at Multi-Brand Outlets with a market share of 23.7%, supported by an enhanced product portfolio, effective marketing campaign and wider product placement, Voltas' inverter ACs under the All Star range has met with an encouraging response. Inverter ACs contribute 17% to our split AC sales. We witnessed continued growth in air cooler sales with sales growth of over 50% in current year. Investors will be happy to note that Voltas has launched India's first window AC with inverter technology. The product range has other features, like high ambient cooling up to 52 degrees Celsius and its two-stage filtration, which provides cleaner air. With this launch, Voltas has strengthened its commitment to continuously bringing the latest technology in the Indian market, all at an affordable price. To sum up, the air conditioning industry continues to be very competitive. We believe that our trust on energy-efficient products and our expanding distribution network will enable us to withstand these competitive pressures, particularly as we move into peak selling months. We remain focused on securing good quality, commercially viable, risk mitigated orders in our project business. The launch of consumer durables products under the JV with Arçelik is progressing as per schedule, with the products expected to be launched by the second half of 2018. Our balance sheet continues to remain robust with low debt and comfortable cash position, indicative of appropriate resilience. With that, we now open to a Q&A.
[Operator Instructions] We have the first question from the line of Venugopal Garre from Bernstein.
My first question is on the MEP segment. This Carillion issue, which has sort of emerged, we had foreseen that, but wanted to understand what is the size of the order that you are executing with then just like the pending order -- part of the order of the overall order that you were doing with them? And this INR 177 crores, which you call as a total contract assets. So is it primarily the net receivables, which are sort of pending on the project?
Hi, this is Abhijit Gajendragadkar. So thank you for your question. I think as we had mentioned, this Carillion bankruptcy issue that have emerged in from January 2018 has been in the public domain. As you are aware, we are -- the projects that we are executing in Dubai and Oman, there are a number of projects we are executing, but these are with joint venture companies where Carillion plc is one of the 2 joint venture partners. The other joint venture partner in these companies are local business groups, very large business groups with even engineering presence and good capabilities in terms of executing work of this type. So we are executing projects as a subcontractor to these JVs in which Carillion is a partner. The total outstanding -- the total dues of INR 177 crores actually represents all dues including receivables due, not due as well as work that has been done to-date on the client. And these are various projects, which are under different stages of execution, one of which has nearly been completed, one of which is under execution. So these pertain to -- it is a cumulative total of a number of projects.
Just to sort of substantiate on this first question. I wanted to understand the pending order book, which is not executed yet. What would be the size of that? Because INR 177 crores is what is sort of pending based on what has been executed. So what will be the pending order backlog of the projects where Carillion is associated? And #2, are those projects continuing? Based on your commentary, it looks like those are continuing, because they are one of the joint venture partners.
Yes, I can answer the second question. I think these projects are continuing. So far, we are not seeing anything. In fact, we are also seeing that the normal commercial transactions are happening and that has been -- we have been putting up our claims and these are getting discussed and honored. So work goes on as usual. And these projects, yes, some of these in the UAE and one in Oman and also where there are main clients in the world who would want delivery of the projects and sets the time for certain of their time line that they would have in mind.
Got it, sir. My second question is on Cooling Products. Wanted to understand, you mentioned about prebuy in this quarter, which was sort of, again, expected, but will it be fair to say that this was a very lean quarter, September and December. The extent of prebuy would not be like too large in amount, maybe INR 70 crores, INR 60 crores. So it's not going to be really too much of a dent when you move into the seasonally high quarters of March and June, assuming summers remain strong. So would it be a fair assessment? Or beyond this, you are worried about sort of channel inventory being higher over and above this DY?
See basically, Venugopal, you are absolutely right in saying that typically Q3 is a lean quarter. And obviously, whatever prebuying could happen, obviously, is not comparable to a normal Q1 or Feb-March. But the fact of the matter is that because prebuying has happened and because January is otherwise probably one of the most leanest months in the quarter, the effect of this prebuy would be seen across most of January and maybe parts of February. So now what is important is how the season pans out. Typically, February, it starts with the southern part of the country and now what is very critical is how Feb and March perform as far as the weather is concerned.
Venugopal, if I just take you back a bit, I think, to what we had said during quarter 2 and quarter 1 of this year, we had said that during quarter 1, the secondary channel had significantly depleted their inventory prior to the rollout of GST.
GST, that's right, yes.
So I think -- so this -- so part of the sale in quarter 3 has also been in terms of restocking of what is the normal inventory level in the channel. A part of it is also that since in terms of the rules of the new energy efficiency norms, while the primary sales from 1st of January will be with the new energy efficiency norms. The secondary sales can continue to be, for a certain period of time, as per the older norms. So the secondary sales would continue with some of these models. So that has also been one of the things that has led to prebuying in quarter 3.
The next question is from the line of Aditya Bhartia from Investec.
Sir, just wanted to understand if we have taken any price hikes in the room-ac segment in third quarter? And for fourth quarter and going forward, how are you seeing the impact of energy efficiency norms on pricing as well as margins?
So we have not taken a price hike. For inverter ACs the prices have remained the same. It is really the fixed speed ACs where the energy norms have changed. So we need to peg the prices of the fixed speed AC to the inverter ACs. And as you know, in general, I think, in tandem with the general industry norms, we are maintaining a differential of about INR 2,000 to INR 3,000 between the inverter ACs and the fixed speed ACs. What you must understand is that for a particular star rating what was earlier a 5-star fixed speed AC is now the 3-star fixed speed AC with the implementation of the new norms. So for an energy rating there is a price increase for a particular star rating.
Got it. Got it. But whatever is the incremental cost, let's say, of 5-star AC of -- you say it has now become a 3-star AC. So whatever was the incremental cost, has that been completely passed on to the channel? Or do you think that it may have to be partly shared by companies also?
I believe the SKU which was earlier a 5-star SKU is now a 3-star SKU. What was a 3-star SKU is now even star. So in that sense that model is relatively more or less the same model, but it has -- now has a different star rating. So as I said, so if you take it on the basis of the star ratings, there will be an optical price increase that one would see.
Sure. Sure, sir. And because of this, we would not be expecting any meaningful change in margin for price?
Aditya, I think, we should not confuse between change in pricing and margins, because margins are a function not only of changes in prices, but also because of internal efficiencies, better procurement, logistics, there are multiple factors, which go into margin. Please don't correlate price increase, decrease with margin increase, decrease.
Understood, sir. Understood. And sir, my second question is on the EMP segment, wherein for last few quarters we have consistently seen performance improving on the margin side. We have seen margins consistently going up. So is it fair to assume that most of the issues that we were having in the segment are now over? And given that quality of order book appears to be better now, these margins should be more like normalized margins and no more shocks should be expected going forward?
I think we have always maintained that margins in the project business, we should not look at quarter-to-quarter margins. We should look at more longer terms, 9 months and annual margins. So we would continue to maintain with this stand. Of course, margins for a quarter continue to have been lumpy, if you have -- depending on those what have been really some one-offs in the quarter as well as in some cases the stage of completion for project, because as you know, the project business, which is typically, bigger projects are subject to 2 or 3 execution cycle, the project business tends to have -- be subjected to the accounting as per the completion method. So given that, if you look at over the 9 months, yes, the margins are improving. But the project business, as you know, is subject to a lot of global developments. It's subject to impact of some of these. What we can say from our side is that our continued trust is on high-quality execution. Our continued trust is improving on efficiencies in all of the core projects that we do. And in terms of securing orders for risk mitigated projects where we see adequate visibility in terms of the delivery of the margins. I would say these would be the factors that one would look at in terms of our margins as being contributors to the improvement in the margins.
[Operator Instructions] The next question is from the line of Abhishek Puri from Deutsche Bank.
Sir, 2 questions. First on the UCP business. What is the split between the window and split ACs as such? And when do you see the excise duty benefits are getting over for the plan maybe- [indiscernible] and beyond? And second question is on the consumer durables business, what is the planning in terms of procuring from Arçelik or from outside when we launch? And any revenue targets that you could share for the company? I think Arçelik in their call mentioned $30 million sales.
So I think just to take your first question in terms of the split between window and split ACs, it would get roughly between about 25% window and 75% split. That would be somewhat more in line with the way the industry is the way as well. Your second question was on more the excise benefits. The excise benefits would run out from March 31, 2018. So that's just a few months away. And the third question on Arçelik. As we have mentioned, I think, in our note, we expect that the joint venture is progressing as per schedule and as per the plan that was drawn out by the joint venture. And we expect the project -- products to be launched in the second half of the year 2018. So that is really the launch plan for the products and these would be procured both from imported, primarily from Arçelik factories abroad.
Any revenue targets that you can specify?
No, we are not specifying any revenue targets, Abhishek.
The next question is from the line of Karan Rathod from ICICI Securities.
Sir, I wanted to -- my question was regards to the rating change. So there is a -- an Indian consumer behavior tends to go for the middle ratings. So 3-star was one of the most dominant products in the AC market. So with the prices of 3-star going down -- sorry, comparatively the prices of 3-star going up because of the rating change policy, not because of the product, so do you see a shift of moving down for that the 1-star AC will be a dominant product across the product portfolio?
I think it is difficult to answer as how the consumer will react, because there are about 2 or 3 shifts that are happening in this industry as you are well aware. The first is really the shift in the energy rating, which is happening with where people -- I mean, as you said, there has been a larger proportion of 3-star ACs. Will the consumer migrate to the current 3-star after the new energy rating or will he migrate downwards to 1-star AC. They still do that, and as you have been asking us in earlier quarters, there has been also a slight shift, I would say, between fixed speed split ACs and inverter ACs. So that has also been another factor that is happening in the industry. The trend that has been happening over the last few years is the split and the split between window ACs and split ACs. So I think if a consumer makes a choice, it's really not just between star ratings, it's also a choice between number of these offerings that are available of different mix and prepositions. And, therefore, when one -- when a consumer goes into the showroom, it is also all of these factors, plus you know, entire knowledge plus what is the use that he wants to the subject the air conditioner to; sometimes some air conditioners are subjected to less heavy usage as compared to others. So there are a number of these factors, which will finally play upon how the consumers will make a choice.
Okay, sir. And one more question with regards to the now window ACs that we have launched. So what would be the pricing with respect to our competitors? Will we price at a premium or discount, sir? If you can just give a color on that?
So at the moment, it's more affordably priced, comparatively priced. And if you have also read our notes, we've said we are one of the first to come in with such a product in the market. We are mainly looking at making it more affordable for our window customers to move to a better quality product.
The next question is from the line of Charanjit Singh from B&K Securities.
Sir, in this quarter, if could you help us understand what are the market growth rate in the AC business? And what were the kind schemes which you could have launched at the last mile? And do you see those schemes even continuing in Jan and Feb as well, continuing with the secondary sales still with the older rating products?
Yes. So I think the answer to your first question is that the market rate was roughly around 7% in the last quarter. And your second question was on, will the -- yes, so your second question if you can help me out?
Sir, the second question was like, you know, you would have launched certain schemes basically for Q3, which would have led to this strong growth. So do you see those schemes even continue in Jan and Feb? If you can help us understand those schemes, what were those?
I mean, as we have said earlier, I think the quarter 3 growth was primarily in our view a combination of the restocking in the channel and prebuying due to the introduction of the new energy, particularly to say that secondary sales of the ACs under the older energy table could still happen for a certain period of time.
Okay. And sir, if you have to understand what the inventory levels right now in the channel versus what it used to be in the earlier Jan-Feb level, how will you compare that right now?
The inventory is challenged at this time because of some prebuying which has happened and because the inventory was destocked, and January being a lean month, typically, once you'd assume that the inventory in the channels would be to the tune of about 1 month, 1.5 months.
The next question is from the line of Chanchal Khandelwal from Birla Mutual Fund.
First one. the market growth, you said market growth was 7% last quarter, is that true?
Yes.
But if I look at the listed companies growth, your growth of 31%, Blue Star growth of 25% plus, Hitachi growth of 40%. So I mean these 3 put together would be 45%, 50% of the market. So how can market grow at 7%? So that data doesn't tally?
Just to clarify, when we say 7% market growth, yes, one is basically the secondary. What we talk about numbers is the secondary and not primary. Primary is not the right indicator because what is important is what the channel sends to the final customer and which is tagged by GFK Nielsen, which is an independent agency. So the secondary market grew by 7% in Q3 and not the primary.
So that means that the stock in the system is at an all-time high?
I think we have said number of times in the call, right, that is, it's a combination of 2 factors that led to this.
Secondly, on the pricing front, I'm told that Daikin has reduced the prices in some categories, it's reduced the price even lower than Voltas. Can you just highlight in terms of pricing, how are -- this plays versus competition?
I don't think we can comment on the pricing strategies for other competition. We continue to remain in the popular category and our pricing is fairly competitive as far as other competitors are concerned in the sector in which we operate.
Understood. Understood. But after the new change in norm, have the price changes been done or it's still happening, as you speak?
As Mr. Abhijit just explained to the earlier participant, there has been no change in the inverter ACs. There has been no change in the prices where a 5-star has become a 3-star.
So on the new 5-star there is a change -- the new pricing has come?
So the new product which is coming to the market...
I think just to correct you, I don't think there is a new 5-star fixed speed AC now in the market.
Okay. So no other 5-star in the inverter AC and the 5-star has become a 3-star?
5-star fixed -- the earlier 5-star fixed speed is now a 3-star fixed speed.
Okay. And lastly on the cooler strategy. What's the game plan for the summer going forward? I mean, how -- what are you planning to do? And on the Arçelik, you said second half, is it second half calendar year?
Yes, the second half calendar year, you're right. So in the cooler, we continue to see growth in our sales of air coolers. And we continue -- as you know that, as we have talked about in earlier quarters, there we see that there is a shift which is happening right now between the unorganized cooler market and the organized cooler market, particularly after the introduction of new legislation, GST, particularly. Even within the organized segment, we have seen that we have been gaining market share, and we continue to post good volumes of air coolers. The air cooler market also, as you know, is particularly very seasonal in nature, like the air conditioner market.
The next question is from the line of Ankur Sharma from Motilal Oswal Securities.
Just a couple of questions on your Cooling Product segment. One, while you mentioned that your share of inverter sales was at 17% this quarter. Could you talk about where is this for the industry? And also with this price gap between -- with the inverter narrowing, you vaguely expect the overall industry -- the inverter as a proportion of the overall industry to reach say next year?
I think our estimate of the total industry -- the inverter as a percentage of total industry is around 24%. That's the estimate. And you're right, I think that there have been -- there is a narrowing of the price gap. And so we see -- so we expect that the inverter ACs would continue to grow as a segment. Having said that, you would also appreciate that there are number of other factors which will contribute or even which will -- one is the availability of reliable power. Inverter ACs, therefore, requires -- I think inverter ACs per se given its design and relatively advanced circuitry of the ACs need somewhat more reliable power for it to work efficiently, hence there is a risk of some blowouts et cetera. So inverter ACs, today we are seeing the sale more in -- the second factor, which is also contributing to the growth of the inverter AC sale, is the actual usage of an AC, which typically in India, as we have said in the past, the more the power -- the benefit of an inverter AC would really start kicking in once the usage increases. So I think it's a combination of both these factors. So what we are seeing is that there could be -- even in the same household, which is more than 1 AC there could be multiple different types of ACs. One could be inverter AC, the other AC could be a fixed speed. So it's a combination of these factors which will finally drive inverter demand. But we are -- so we would think that both the inverter and fixed speed will co-exist for some time. And the growth will be driven by a combination of these factors. But having said that, we are today having the product range and the SKUs within the inverter AC range to address any part of the market and address any demand which may come.
Understood. And, sir, a related question here would be, clearly, with the new ratings and the shift to inverter, your realizations per unit typically would go up over the next few years. So -- and coming back to a previous question, would this also imply that margins should also trend up? Or do you think that's completely dependent on competitive behavior? How would you kind of look at that?
I think we have mentioned in the past that we probably don't give forward guidance on margin. But it's a -- and as you know, it's a mix of number of efforts, some of which you have alluded to; competitive intensity, pricing pressures, other developments in the industry. So I think it's very difficult to say that there's only one factor which could lead to any change in margins.
Okay. And my second question, sir, would be -- you did speak about the new ratings. Actually, so do you -- do we also have a fixed speed model of 4 and 5-star ratings, these are the new ER? Or are those going to be all inverters from Voltas?
As far as Voltas is concerned, in the inverter category, there will be 3-star, 4-star and 5-star. And in the fixed speed, it would be 1-star, 2-star, 3-star. We are contemplating whether we should be looking at 4-star only.
The next question is from the line of Atul Mehra from Motilal Oswal Asset Management.
Sir, in terms of -- if we were to look at Arçelik, so quality business, if you could talk about a little bit on how the progress is like in terms of having to make separate teams which has been now assigned on the distribution side? And secondly, when we launch in towards 2018, what would be the initial coverage that you'll look at -- over existing coverage? Can it be around 70%, 80% coverage right from the launch or how are we looking at?
Well, as we have mentioned in our write up, our plans in terms of launch are progressing as per schedule, so -- which involves a number of things to be done. It involves product selection, it involves adaptation to the Indian market, stepping on our strategy of how you differentiate our products from the competition in these markets and also seeing in a number of other things. So a number of these activities are all in parallel. So the teams are working together. The teams are interacting with the joint venture company and a lot of customers research is being conducted. And the results of that customer is being fed into what could be the product add up. As we have mentioned to you in the past, I think one of the strengths which Voltas brings to the joint venture is really is in distribution network. So we would leverage the Voltas distribution network for selling this product under the joint venture.
But sir, will it be safe to assume that as you launch, you could be targeting around 70%, 80% of the coverage -- existing coverage?
I don't know what is 70%, 80% of the coverage that you are referring to with 70%, 80%...
Existing distribution [indiscernible] 60%, 70% of the industry outlets do the stocking from day 1?
Yes, it will be an all-India launch within our existing distribution network.
Right. And sir, in terms of feedback that you would have received from as you do your market research, so what is the general reception like, because on the air-conditioners, which is a very flatter market, you definitely have a much more consolidated landscape -- competitive landscape. So what is the general feedback that you have received so far?
On the products, I don't think, this is something that we can really comment on what has been the feedback to the testing that has been done. But as I said to you, I think, it's not that something has been definitely concluded. A number of activities are work in progress at this point of time, leading up to the launch in the second half of the year.
Next question is from the line of Amber Singhania from Asian Markets.
My question is pertaining to the UCP segment. As you mentioned that we are not taking a price hike for our like-to-like product so far. Whereas, so far in last 9 months you have seen a lot of cost pressure coming in because of commodity price increase and industry-wide rating we will take the lead to increase the prices, everyone's taking it. This is the first time we are seeing that the other players have also already started passing on some pricing to the market as such. So is it that we are waiting to increase that pricing yet? Or is our internal cost efficiency is good enough that we have absorbed already to the cost pressure which came because of the commodity price hike?
The commodity pricing which has happened has not really affected the industry as such, because most of the inventory being sold today is not -- does not involve too much of high commodity pricing because this had come in at the start of last year. Going ahead, when the actual season starts in Feb-March, this is a time when we actually get to see apart of the new inventory coming into the market with basically higher commodity prices. So that's the point of time when we -- all the players would take a decision depending on market conditions and weather, or if at all any pricing needs to be taken, what's the amount of price has been taken and each one will have their own internal efficiency factors and other factors, the logistics and all, which will play a role in the determining the price at that point of time.
Secondly, sir, because the summer season is already -- just on the verge of starting, like said, you must have already done the planning and ordering towards winters as such. So what is your sense in terms of how this year's summer season will be looking as such overall in terms of industry growth? And secondly, just on the follow-up of the previous answer that -- on that light of -- like do you see that we also need to increase the pricing because if couple of players have already started doing that? Or do you still have enough room to continue with the current pricing? These 2 questions on that.
So I don't think that Utsav has just spoken about our pricing and what we've done. So I don't think we'll comment on the pricing matter again.
And outlook about the demand, sir, for the summer season, as such?
Yes. Always hopeful of a good summer, which will benefit the industry. I think it's too -- I would say to talk about how the summer will pan out but we are hopeful.
The next question is from the line of Deepak Agrawala from Elara Capital.
My first question, if I see that there is a very sizable gain in the market share on a Y-o-Y basis, that was 2 percentage point. So do you -- what would you attribute this to largely? Is it due to the prebuying that we have seen because the growth is significantly higher than the industry? Or what else?
I think any market share gain is a combination of many factors as we have said on in the past calls. It's a combination of our distribution reach. It's a combination of the brand presence that we have, and the attributes of our brand and the pricing and the nature of our products. So I think all of this has led to a market share gain. As we have said in the past, we continue to be focused on the market. And India, as you know, is not really one market. It's really a number of smaller, smaller markets. So we need to have this focus in almost each state and within each state, within each district, because the competitive intensity and the breadth and depths of competition in different parts of the country could be very different. It's a combination of a good focus on the market, the products, the brand, et cetera, which has led to this improvement.
So specifically, your distribution reach -- has the touch points have increased like in a year's time, and how much touch points you would have added? If I recollect, it was around 12,000 to 14,000 kind of number?
I think the number is around 14,000-plus at this point of time.
Okay. And my second, one housekeeping question. There is a sizable drop in the other income, and a sizeable increase in the other operating income on a Y-o-Y basis. What can you attribute this to?
I would say that the drop in other income is really, as you know, a lot of our surplus money is invested in mutual fund schemes. Primarily, these are debt mutual fund schemes. In the past few quarters, we have seen that the bond yields have gone up and that has affected our -- the mark-to-market gains on our mutual fund schemes. And that has been the reason, particularly when you compare to last year when the bond yields were very much lower compared to the yields at this point of time. And this has been the major factor for the drop in our other income and that is reflected in the numbers for the quarter. And even for the year-to-date, since we have seen this drop from quarter 2 onwards.
And other operating income?
The other operating income for the period I think was more a combination of a number of other small, small things. I'm not very sure that there is a big difference between the 2.
No problem. And my last question is on EMP business. Right now, we have seen the last 3 quarters of fairly handsome EBITDA margin -- EBIT margin numbers that the company has been reporting. And rightly so, because you have been saying for the last couple of years that the incremental order bookings, we have been very selective and prudent. So we will -- are you going to stick to your guidance of about 5% EBIT margin, and going forward FY '19 with, I must say INR 5,000 crores order book?
I don't think we have given forward guidance in any of our margins. So -- but I think we have talked about the many factors that have led to the improvement in the margins. That continues to be our focus.
The next question is from the line of Aditya Mongia from Kotak Securities.
And my first question was more on the tax rate, which over the years has been quite volatile. So just wanted to get a sense from you, which are the factors will determine the tax rate for a specific year? And if there are normalized number that one should be assuming going forward?
Yes, I think the tax rate is actually a -- as you know, tax for the consolidated financial is an addition of the tax rates in each of the individual company. So from year-to-year, the tax rate would maybe depending on the profits, and the Voltas standalone profit in subsidiaries and some of the tax benefits available. Also between the mix of income between investment income and income from operations. I think it's a combination of number of these, which would drive the tax rate. So it would be very difficult for me to put a rate to it. As you can see, in this quarter, we have had a different mix of profits in our subsidiaries and standalone as compared to the same period last year. And I think that is the one of the factors contributing to the change in the tax rate.
So any prominent number that you would want to share over here? Would it be below 30% typically for in a year?
I think you should assume anything in the range of 28% to 30%.
Understood. Sir, the second question was more on the margins reported in the quarter for UCP. Would it be fair to say that this 200-basis-point increase which has happened would have been led by the destocking and prebuying? Or are there initiatives that you would want to highlight, which is leading to heavy margin levels for the quarter and 9M?
I think if you have such a good growth in your revenue, then you would also gain on operating, whether in terms of fixed cost, it could be spread over higher volumes. And you know, marketing and advertising expenses would not have been as a percentage that high as compared to the volume growth and the turnover growth that we have seen. So basically, there will be an operating leverage, higher volumes within the advertisement and marketing spend, all of this would contribute to improvement in margin over the same period last year.
The next question is from the line of Mohit Pandey from Citigroup.
Sir, my question is on the EMP business margins. In response to one of the earlier questions, you did mention that it tends to be lumpy and could be impacted by one-offs and the stage of project completions. So just wanted to understand if there were any one-offs during the quarter?
Well, I don't think there were any one-offs during this quarter. But we do -- but there are stages in terms of settlements, et cetera, which is a normal part of any project business. So I don't think there were any one-offs in the quarter. But as I mentioned in response to an earlier question, the margins are also dependent on the stages that which you are in the project. I mean, it could suddenly move up from -- and the margin recognition typically starts at a certain period of time. And then as you move through the project cycle and if the project suddenly accelerates in terms of the pace of execution that much more margin keeps coming, which is why we always alert you to the fact that one shouldn't look at quarterly margins in the project business.
Sure, sir. And secondly, the press release mentions that the domestic orders this time were from the infra space. If could you elaborate on which specific spaces within infrastructure?
I think it's a -- rural electrification is one of the major areas. Transportation is also another space. It starts from urban infrastructure, primarily transportation, metro, et cetera, that would be the main parts of the business
The next question is from the line of Mihir Manohar CLSA.
Yes, hi. Thanks for giving me the opportunity, but my questions have been answered.
We will move to the next question. Next we have a follow-up question from the line of Venugopal Garre from Bernstein.
So on other income side, just wanted to understand, if sort of there is not much change in ED, would it be fair to say that you would again come back to your normal run rate of other income? Or has there been any reshuffling done again this quarter end so that you end up sort of gaining back on the other income side? And within that wanted to also understand is there any element of FX losses sitting somewhere in the financials?
See, if you basically compare previous year's same quarter to this quarter, there are 2 important changes which have happened. One is I think as you pointed out the lease have substantially gone up, which has affected the mark-to-market, which as per the new accounting standards we need to reckon. To answer your question I think the lease remains the same as what it is today going forward. Obviously, you will not get the kind of income where there would be because of the movement of the synergies, but you will get the standard accrual depending on the writings on the schemes in which you have invested. As far as for Forex is concerned, yes, as the rupee has primarily appreciated as compared to the same period last year. You are aware that one of your accounting standards talks about reevaluation of our assets and liabilities especially for the international projects. So to that extent, yes, there has been a Forex loss, because of the depreciation of the rupee.
Where does it normally come in, in the financial statements?
It is part of the other income...
Other expenses or other income.
Depending on what it is.
Sir, is it possible to quantify that? Or is it too small enough not to...
It is not that larger amount. So annually it is about -- because of the deduction in investment income, because of the high movement of these, of the previous resale.
Okay. Fair enough. Second question is, just wanted to know whether this has been discussed earlier, the air cooler business, have you ever quantified your overall revenues for the last 9 months?
Yes, when we quantified the annual sales over the -- at the end of the year. At this point of time, all that we have -- one that we can share with you as compared to the same period last year, our volumes are substantially high.
You also mentioned about gaining market share. So is there a market share number that you can quote, the way you quote...
We are #4, we still continue to remain #4 with Symphony being the leader. And there is no gated information available about this product. There is no agency like the GFK Nielsen which tracks independently for the air cooler business. But in general, based on our information, we are the #4 player in the air cooler business as of now.
So in your sense, it's like still a single-digit market share. Is that would be a fair assessment?
Honestly, because there is no detailed information, how will I tell you? It's not fair to speculate. It's not fair on our part to speculate.
Next question is from the line of Rahul Murkya from Jefferies.
Sir, firstly, great set of numbers. This is the Lavina here. Just one follow-up on Carillion. I know maybe you all are not in a position as of now to discuss a lot on it. But just wanted to understand, are you associated with their projects in both Dubai and Oman, or just Oman? Is that something at least you can tell us?
It's projects both in Dubai and Oman where Carillion is a joint venture partner of the main contractor.
Which you mentioned is a Middle East company, right?
Yes, which is a Middle East company. And the main -- and the joint venture -- and the Middle East company, which is a joint venture partner is the largest shareholder in the contract.
Sir, at this point in time what you're saying is...
These are 2 different companies. Carillion U.K. is a different company. Even in Carillion UAE, the joint venture is with a UAE-based company. In Oman, it is with another Oman-based group. Both these groups, as I mentioned earlier, are large business groups in UAE and Oman, respectively.
Okay. So that's the reason you all are saying that at least as far as your exposure is concerned, INR 177 crores is the maximum exposure and projects are, let's say, progressing normally. So that's the status at this point in time?
Yes, yes. You're right.
Due to time constraints, we will be able to take 1 last question. The last question is from the line of Aditya Mongia from Kotak Securities.
I just wanted to get the number for the market growth for 9-month also. The way you have given it for the third quarter.
Market growth that we mentioned -- just help me out, you wanted the number for the market growth that we mentioned. We mentioned for third quarter, what is it like for the whole of 9 months.
So the industry growth is 12% for the 9 months and Voltas growth is 13%.
Thank you very much. We will take that as the last question. I'd now like to the hand the conference back to the management for closing comments.
We thank everybody who have been on the call. And if your questions have not been answered, kindly get in touch with Investor Relations team, and we will be able to help you out. Thank you so much.
Thank you, everyone.
Thank you very much. On behalf of SBICAP Securities, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.