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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day, and welcome to the Voltas Limited Q3 FY '23 Earnings Call hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Bhoomika Nair from DAM Capital Advisors. Thank you, and over to you, ma'am.
Yes. Thanks, Aman. Good afternoon, everyone, and a warm welcome to the Q3 FY '23 Earnings Call for Voltas Limited. We have the management today being represented by Mr. Jitender Verma, CFO; Mr. Manish Desai, Head Corporate Finance; and Mr. Vaibhav Vora, Manager, Corporate Finance. I'll now hand over the call to Mr. Verma for his initial remarks, post which we'll open up the floor for Q&A. Over to you, sir.
Hi. Good afternoon, everyone. I hope you all are having a good day. And we start with our call by giving an analysis of results from our side, and then we'll open the call for questions and answers. As you are all aware that the impact of multiple headwinds during the calendar year 2022, such as Russia-Ukraine war, resurgence of COVID-19 in China, movement of commodity prices and policy measures taken by Central Banks of increasing benchmarks interest rates to curb the further inflation, et cetera, could be felt throughout the year. Considering these above macroeconomic factors, USD/INR, along with other currencies across the emerging markets remained extremely volatile and depreciated about 11% during the year, adding to the woes of inflation and consumer sentiments. While the impact of COVID has slowed down, the consequences of war and inflation still persist. Stroke [ size ] of recovery in the last quarter of the calendar year in few economies, descending inflation rates and softening of the Central Bank's [ fangs ] on the interest rates are green shoots building positive sentiment around the globe. While India has showed resilience to this global inflation, the overall growth of economy has witnessed the effects of various global events. The [indiscernible] peak of current account deficit, muted capital account inflow and higher inflation rate has affected the consumer confidence intact across all segments and in particular, the discretionary sectors. The policy measures taken by the Central government to strengthen manufacturing in key sectors that is production-linked incentive, higher allocation towards building infrastructure and softening of inflation rates shall support the economic growth in the coming quarters. Given seasonally weak quarter for the cooling products, the company reported a growth of 12% for the quarter in consolidated total income at INR 2,036 crores as compared to INR 1,822 crores in the corresponding quarter last year. Profit before share of profit loss of joint ventures and associates, exceptional items and tax was at INR 90 crores as compared to INR 171 crores in the cost for the quarter last year. Profit before and after tax was impacted during the quarter due to an exceptional provision made of an overseas project, earnings per share not annualized for the quarter ended 31st December 2022, all at negative INR 3.34 compared to INR 2.90 last year. Snapshot of our results this quarter is presented, which already is in our published statements. Segment A, as Unitary Cooling products. Considering seasonality of the cooling product business. This segment has performed relatively better reporting a revenue growth of 11% and 44% compared to quarter 2 financial year 2022 and 9 month FY 22 respectively. During the quarter, we witnessed positive demand for high coverage and better star-rated products across the market. The expanded portfolio of SKUs with improved features and tactical pricing of inverter category has helped us in increasing its share to 82% from 65% of split air conditioner sold during the quarter. The success in the split category has led us to launch inverter window category in the recent period. In terms of the overall AC market, we continue to retain our undisputed leadership with a YTD market share of 22.5%. The expansion of exclusive drive outlets and healthy participation with various channels share assist in the forthcoming season sales and it shall further strengthen our market leadership in this category. Commercial refrigerator contributed its growth journey during the quarter with the participation from OEMs and retail chain. The capacity expansion is progressing as per schedule which will help us in introducing various consumer-centric products with improved features. With the objective of product portfolio expansion, we have signed technical agreement with Vestfrost of Denmark for medical refrigeration products during the quarter. The relevant SKUs will be introduced in the coming year with the long-term objective of attaining leadership in this growing category. After having muted growth in the air cooler category during growing period, this category has grown during this quarter as well, as well for the period ended December 2022. Introduction of SKUs across all product verticals, a differentiated product from the investment in [ malls ] and a targeted distribution and dealer schemes as ported in wider penetration across potential markets, which will bode well for future quarters. The above has resulted in improving the overall profitability of the category with a market share of 9.2% in this competitive and fragmented market. Expansion of commercial establishments across various factors and a growing demand for light commercial and tractable products resulted in growth for the commercial air conditioning category with improved margins. The focus on customer retention with value-added services is supportive in securing drop-off orders of after sales service at a competitive pricing. On the cost front, the water has been reversing of down trend of commodity pricing, [indiscernible] in the previous quarter. However, the rupee depreciation has taken away this -- so marginal advantage of soft commodity price from the peak level. The intense competition to grab the market share by the players in the industry has kept the consumer price competitive despite an energy upgradation in July, increasing the cost across air conditioning products. The value engineering coupled with heavy negotiation with the suppliers have mitigated top of risk, partially reducing the impact on margins sequentially. In summary, for the quarter ended December 2022, the UCP segment registered 11% growth in turnover from INR 1,094 crores to INR 1,216 crores. Segment reported an EBITDA of INR 89 crores in quarter 3 FY '23 as compared to INR 102 crores in quarter 3 FY 2022. For the 9-month ended December '22, the segment registered 44% growth in turnover to INR 4,426 crores from INR 3,064 crores with the EBIT of INR 332 crores. Segment B. Electro-Mechanical Projects and Services. Segment revenue for the quarter was INR 648 crores as compared to the previous corresponding quarter of INR 554 crores. Segment results reported a loss after exceptional item of INR 183 crores as compared to profit of INR 36 crores last year. Domestic Projects business, which is ensuring order booking of INR 1,040 crores as compared to INR 185 crores in similar period previous year. This quarter witnessed a plant execution of the projects. However, a delayed certification by customers, coupled with new projects not crossing the milestone of recognizing margin in line with the internal policy impacted the financial results. In terms of International business has secured an MET project [indiscernible] our entry again in the Kingdom of Saudi Arabia. The progress of the ongoing projects across Middle East is at scheduled pace and few of them are at the completion stage in the near future. Delayed collection in few of the projects continued in this quarter resulting in provision in line with the risk policies. In addition to it, in one of the overseas projects in Qatar, the base contractor has utility attached the underlying bank guarantee, regardless of any protection from the clients to his bank currently and in spite of satisfactory execution and performance of our scope of work. The company has considered a provision towards retention views and the attached guarantee of the said project following a proven approach and disclosed the same as an exceptional item during the quarter and 9-month period ended 31st December 2022. The company has initiated legal actions and issued request for arbitration to recover the amounts due from them. On domestic front, we remain optimistic with an increased allocation of infrastructure relevant to our project skills and expertise covering water, electrical and water infrastructure. At the end of the quarter, the carryforward order book for domestic projects stands at INR 4,538 crores containing orders across water, HVAC, rural electrification and urban infra activities. The international order book as of 31st December 2022 stood at INR 3,005 cores. Total carry forward order book of the segment stood at INR 7,543 crores approximately near the pre-COVID levels giving a fair visibility to future performance. Segment C. Engineering Products and Services. Segment revenue and results continue to report improved performance for the quarter over corresponding quarter of previous year. Segment revenue was INR 118 crores and EBIT was INR 46 crores, respectively. During the quarter, mining operations in Mozambique were in full swing. Increase in the core duty of the iron ore has impacted the demand for the capital equipment and improved margins has boosted results for this vertical. Improved delivery of textile capital machinery from the principles and the tactical approach towards aftersales service revenue augers well for the segment during the quarter. Focus on after sales service gave boost to the margins under the verticals. Albeit supply chain-related disruptions and volatility in the yarn prices impacted the running of textile mills which continue to post challenges with the carriage period. However, we are happy to inform that we have a good order booking of capital machinery pipeline and have also won contracts for a few global vendors during the month. Voltas Beko. At the outset, the Voltbek brand has crossed a milestone of selling close to 3 million units cumulatively since launch which is first part is the appliance category in the short period of around 4 years, and this demonstrates the strength of Voltbek brand and acceptance of the products across value chains. The demand for the appliances at large was muted during the quarter given the overall trade and consumer sentiment on a relatively higher base of the previous year and the limited offtake during festival season has affected the trade participation in the primary sales resulting into a small volume drop during the quarter. Nonetheless, the brand is aggressively pursuing growth strategy by leasing channel participation, focusing on the organized retail channels and e-commerce players. Voltbek continues to provide good quality products in refrigerators, washing machines, microwave and dishwashers at value [indiscernible]. The aggressive localization of these products accelerated launch of customer-centric products with improved margins and improved supply chain to mitigate related rates. Voltbek will continue to leverage strength of our international joint venture partners across value chain to further strength its presence of Voltbek in this competitive advantage. Outlook. The safety resulting of the rural inflation and finally across [indiscernible] channel or the forecast of hot weather should support cooling product sale in the coming quarter. The easing of supply as disruption should also bring stability in commodity and evaluation costs. In addition, our focus on the infrastructure by the government in the operating territory should help in securing profitable orders for the project business as well. In general, we remain optimistic with the improvement in general macroeconomic environment.
So this brings an end from our side, and platform is now open for any question-and-answer session from the participants.
[Operator Instructions] The first question is from the line of Ankur Sharma from HDFC Life.
So 3 questions. One, again, on the room AC side first. Given the fact that we had a very weak second summer and when I look at the GSK data as well on the retail side, AC sales have actually declined at least for November, December -- sorry, October, November, December, I [indiscernible]. But clearly, details have not been very good. So if you could help me understand the kind of inventory that is there both with you also with the channel as we get into the upcoming summer season. So do you believe, given there's high inventory, you may see slightly softer primaries going into Q4?
Ankur and other participants, since Mr. Verma has a throat problem, most of the questions will be answered by me, leaving only a few questions where Mr. Verma has to provide additional input to it. Having said that, Ankur, yes, the -- if I look from the October to December GSK data, the growth in the category of the air conditioner is not even more than 2% and primarily led by some growth what we have seen in the month of December, whereas the drilling of the October, November, what you said stands -- holds good over there. And that is resulting in -- in the terms of material by the channel partner as well. So I would say that the inventory at the channel partner and has largely been regularized or largely been in line with the [indiscernible] what they are seeing. And accordingly, in our own building, the inventory with channel partner is not in excess of what the season or what the peer demands for the same. If I look from the manufacturer perspective, Ankur, obviously, we are building up for the season period. Looking into various initial, I would say, hearings on the supply chain, possible supply chain disruption on account of COVID or whatever the reasons and by learning from the past, listen, we would like to take any risk during the seasonal period of time and that because of that, our inventory level are slightly higher. But if I take into the growth when I take the volume of the last year, what we did for us as well for the industry, I would see that the players will be carrying inventory of not more than even 75 to 80 days or more than 90 days. In our case if I take into the future -- the volume growth, what we are eyeing for it, our inventory days are in 75 to 80 days.
Okay. Fair. And second would be on price hikes and your guidance on margins more importantly for FY '24. Typically, brands announced new models for summer during Feb and possibly take price hikes as well. So what are you seeing or hearing and what are you planning to do as well given the market leader for the coming summer. And I remember you said that for the foreseeable -- at least for the next few quarters, you have said in your Q2 call, margins could be in high single digits. Are you still retaining that? Would you want to kind of raise that given RM prices at least seem to have pulled off and kind of stabilizing?
Ankur, in fact, the new orders we get introduced during this quarter 4 because that's where the model launch plan, taking into consideration of the season preparations and season demand from the consumer side. But if I look from the -- both from the cost and price side, yes, there is a pressure on the cost. We have seen softening of the commodity price. However, we always agree that in the later back end of the quarter 3, the cycle is getting reversed and we are again seeing the escalated commodity price setting in. Although it is still lower than the peak what we have seen at the beginning of the calendar year. However, we all know that still the component perspective, the larger dependence is still continuing on the import side, which means any currency depreciation also have an impact on the overall cost structure for the category and that's where in the initial spill which we just put it out. We clearly said that the cost has not actually seen any significant reduction, in fact, after the energy leveling, it has marginally gone up. However, the quarter 2 and quarter 3 from the consumer perspective, the demand was not that strong, and that was not having any sense to do a price increase in the market. We have to wait and watch for the quarter 4, how it is panning out. If it is showing a good amount of -- or a reasonable amount of growth, what industry is expecting it, some kind of price hike can be expected in the beginning of the quarter 1 of the next fiscal year. But for the quarter 4 and even for the quarter 3, which we have seen, there was no price increase announced at least by Voltas for the quarter and there's no plan for any price increase to be announced for quarter 4 as well.
[Operator Instructions] The next question is from the line of Sujit Jain from ASK.
If I look at your Q1 presser, you spoke about aggregate market share, 24.1%. Then in Q2 presentation, you spoke about August market share and in Q3 presentation, you spoke about YTD market share. Our request would be to stick to one format. Is there an improvement as you need to highlight, you can highlight it separately so that we can maintain a series across all quarters and all these years for your market share.
Okay. So let me answer this one, so that I can recollect and then you can complete your second question. Since the reporting, what happens is since you are in the seasonally product category. And the -- when you have a secondary -- to give you a perspective, for the October to December quarter was -- as for the GSK data, the entire secondary in this quarter is 0.5 million units. And if I take the industry size, it will come in a small percentage. And that's why any swing in the market share, for any player research in the industry during quarter 2, quarter 3 will not have that meaningful difference or meaningful kind of indication towards it. And that's why we refer to our YTD market share generally during quarter 2 and quarter 3 compared to quarter 1 and the quarter 4 where the exit market share does make relevance due to the seasonal peak year -- season peak time for this category. So this is a clarification. But if you require separately, you can contact with us -- with any one of us who will give you the month by month if you need for that market share trajectory.
So the other company listed last year they report YTD for every quarter. So basically, there is some semblance as to how the series is moving.
So I'm not seeing -- if I look from the listing category, I have seen only Blue Star, which is making the investor call up like us. In that, if you look into that itself, they do talk about the market share what they have. And then it goes -- that's why -- and when in the quarter it generally prefers to YTD during the quarter-to-quarter is my reading, but I correct myself once I go into more deep and want to interact with them. Generally, we do it after the quarter ending.
And about the EMP segment, the negative...
And furthermore to give a clarity on that, there is a difference between appliance and the air conditioner. Generally, we look into the appliances because of the festive season, you have a good amount of buying coming into a refrigerator, washing machine and also [indiscernible] them in order to report a market share in a particular frequency. So this is what the analogy I can drive for it being in the industry for some period of time.
Yes. I'll [indiscernible] but to maintain the same series, we should be reporting YTD, so that there is no confusion.
As I said, you can interact with us at any point of time to get any month market share in between. For the reporting period, I cannot talk about the -- on reporting period for that matter.
Sure. And EMPS, the negative margin that you reported, the EBIT margin, and you've called out provisioning for delayed collection. Is this on account of Indian orders or Middle Eastern orders?
I would say largely it pertains to -- when I look into the domestic side, we have find the delayed, I would say, a certification of the claim amount because generally what happens, Jain, the certification of the regular bills tax at the pace at which it is taking place. But when the project is coming to an end or when you have a substantial amount of variation in the claims to be certified, it generally takes a longer time. And as internal policy, we have to -- we cannot wait endlessly to get it approved because in our books of account, the account has been accounted as a cost, and I have to take reasonable provision in terms of any delay over there. So in case of domestic, this was a dominant kind of factor where the settlement of the claims actually took a longer time and the claim in the variation. But if I look from the international side, yes, the delayed connection played a larger role in addition to the exceptional item, which we have just built out in terms of one of the contract, one of the order where the initial action being taken by the contractor regardless that he's position with the main client remain more, I would say, in a quite manner.
The next question is from the line of Rahul Gajare from Haitong Securities.
So building on the earlier question, is it possible you can quantify the provision that you've made towards receivables and the provision you've made towards the international project. So we have a very clear understanding as to what is the provision that are for the receivables which obviously, it's more of a delay rather than not coming. There is international projects, we don't know what would happen there.
As I said, Rahul, I've just clarified the earlier participant. That in the case of domestic, it was largely because of settlement of the claim, it is going into -- delayed settlement of the claim is going into it. So on that front, the provisioning on account of receivables, delay or collection delay is not so high compared to the international. We are not giving any breakup between these 2 segments -- between these 2 verticals on the projects. And so I would like to maintain those, I would say, trend for that matter.
Sir, with respect to this particular project, do you see any more risk of singular provisions, which would come in international project. How the risk management -- ensuring that such things will not happen.
Rahul, if I look -- if you ask me this question, quarter 2, I was more confident that probably such kind of action is not foreseeable in any of the projects which we are doing in the international projects. But after having this quarter 3 incidents as well, our confidence is also somewhere going into much -- in a deeper way. In order to see that what more can come and how best we can safeguard those risks. If you look into this, there is no similarity between quarter 2 -- quarter 2 incidents in the quarter 3 event. If you look on the quarter 2, it was -- although we have mitigated the encashment of bank guarantees by putting a condition, but their condition got fulfilled and thereby the guarantee got involved. But in the present event, it was, as I said, regardless that the [indiscernible] customer has not done any action against a contractor, our contractor has acted unilaterally. So in this case, I would say we have a limited kind of avenues in order to mitigate those kind of risks because we all know, bank guarantee, via domestic or international operation is like a bearer check or bearer instrument you're giving in the hands of the beneficiary to do act and whatever we can think about the condition to put in order to mitigate the risk, we are taking care of the same. But beyond of which the option is available to any of the players or any other participants in this project business by way of bank guarantee are anyway limited.
The next question is from the line of Siddhartha Bera from Nomura.
Sir, just to clarify one thing, if I heard correctly, you said that there was no price hikes taken in the fourth quarter in the UCP business. And I assume that the due dated products are now in the market, which would have needed a certain cost increase. So is it fair to understand that for those new products also, we have not taken any price increase till now?
Siddhartha, you're reading this correct, I said, quarter 3, we have not taken a price hike and for quarter 4 also, we are not looking into any price increase currently. So this is one sentence, yes. The second thing is the quarter 3, yes, the energy leveling got changed in July itself. And we have to now sell whatever we are selling is with the upgraded star rating and obviously, each star rating revolves the increased cost, and we are incurring those costs over there. But somehow we are managing, as I said, softening of the commodity price, some kind of value engineering, good negotiation with the suppliers, we are mitigating those risks and delivering this product at the same price -- delivering the improved products at the same price.
Understood. Sir, does that assume that -- or is it a fair assumption that given the lower cost of procurement which we would have done in the last few quarters, which was -- probably we have not sold till now. So that would take care of the cost increase and at the gross level, will we not see any further margin pressure? Or do you think that may not be accurate?
Siddhartha, if I look into this, I would say that the levels changed what we [indiscernible] out the product, it would have result into some kind of price increase to the competition -- to the end consumers. However, this price increase on -- have we done the industry would have moved into a reasonable price increase, probably the players would have seen the improved gross margin sequentially compared to what we are billing quarter 2. However, that has not happened. Second thing is the second question comes about and I'm talking more than what you asked about is the leverage on the volume. Obviously, quarter 3 primary billing is slightly higher than my quarter 2. But those volumes can give you some kind of leeway in managing our cost, but not enough resulting into an improved gross margin. So what we are looking for eye for quarter 4 now where the volume should be much higher than what we have seen in quarter 3 and that should also leave some space for the leverage to play on the margin side. So in and all, what I'm saying Siddhartha is, carryforward inventory will anyway be there for some time and it gets averaged out with the new inland material, which is flowing in. However, the commodity price, again touched to, as I said, level of -- closer to a peak level which is again going back to the peak level, what we are looking from the leverage perspective on the volume side, it will also not flow in the gross margin in the quarter 4. So we have to wait and watch, and that's what even Ankur, I could not answer the first participant from HDFC then he asked this question that how the quarter 4 on the gross margin have seen maintaining stand on a single digit. These are the uncertainties in which we are living for. Is that the commodity prices going up, we will not get the leverage on the volume leverage advantage. If it remains where it is, probably you can see some kind of improvement sequentially when we move on. Siddhartha, I just tend to it. I wrongly only mentioned gross margin, I'm talking about the EBIT margin.
The next question is from the line of Amber Singhania from Nippon India AMC. Amber, please, use the handset, you're not clear...
Am I audible now?
Yes. Much better.
So sir, my first question is towards the project side. As you mentioned that this quarter, it is less confident about the future trends compared to last quarter. So if you can just give some highlight about how much is the more projects we have or how much is the more claim we have there where in other projects also, which have any probability of going otherwise? And also currently, these 2 projects the last quarter, it was one project where we have provided everything now again in the project has come in. How much was the total size of these projects where we have provided so far around INR 250-odd crores?
Amber, INR 250 crores is the cumulative amount. For the quarter, the provision to almost equal to or slightly higher than the quarter 2 is what we picked up. Second is, again, when I was saying I'm not so confident. I told in the context of happening this transaction one by one in the 2 quarters period. Although we take all projects, irrespective of whether Voltas is doing or the other contractors is doing, has to provide a bank guarantee to -- under the project business, the normal market -- and if you recollect and if you can do those who have been seeing or trending the Voltas for the past -- for a long period of time. We never had an encashment of bank guarantee positions or situation ever. Even I take from the last 10 years where I've been working with this company for long. Our situations are -- keep on changing in the external world, and we have to keep those, that's what we do normally. And that's why we have some kind of condition also get inbuilt into the guarantees so that it won't trigger on a normal way of business. But that's where we have to be more careful about it. And as we move forward, if this is going to be a trend as yet, we are not forcing any such kind of guarantee encashment taking place or any of the projects we give but that opens the eye that we need to find out an instrument alternate to bank guarantee which doesn't tantamount to give a better check to the beneficiary, but hold some kind of responsibility at the entire value chain partners.
Why I'm asking this, sir, if I'm looking at last entire decade of our operations in this business as such, we have made roughly around INR 800 crores of EBIT and at the same time, we have provided for roughly around INR 600 crore kind of money, including Sidra, if I look at the 10-year horizon as such. So would it be -- would it make sense to -- for us to do this business in Middle East going aggressively so much? And at the end of the decade, we realized that we have virtually not making anything because the thing is that the geography is panning out to be very difficult continuously in every period of time, be it Sidra time and be it now again. These things are cropping up. So what is management's thought process on this line, whether we should have a relook at this geography as such?
Amber, in fact, if you go in [indiscernible], if you go to any of the geography because if you look from the market perspective if somebody who's doing a project in Sri Lanka, Pakistan or other countries, Bangladesh, even there, you don't see the economies will go into such kind of crisis and we'll have such kind of situation to come up. Whereas the Middle East countries have not gone into such kind of financial crisis. But somewhere, as I said, the industry team has cropped up over there leading to such kind of events. I would not like to compare Sidra with the 2 events which took place in the current period because Sidra was altogether a different kind of incidents took place so some kind of provision which we took that point of time. And the learning also has continued in the subsequent projects when we took. I would not like to elaborate more on this, but on a one-to-one I can talk about it the difference between these 2, considering the time concern what we have and to provide for the other participants. I would say that the business does go through this kind of cycle. Yes, we did provide a good amount of profit that we earned in this quarter, but that doesn't mean that we should ignore the [indiscernible]. If you are able to do this business and generate some kind of ROCE in a better way. That's what the focus we are having it concurrently. Some -- as I said, something comes up, but we will definitely ensure that how best we can mitigate those kind of risk and ensure that we remain -- I will not say much profitable, but a reasonable profitable driven territory as we move forward. However, in terms of if you were to discontinue this line of business, I would not say the biggest risk to run into it. But you have to take this perspective in this into a larger perspective when we look into the -- holistically to the output of business verticals.
The next question is from the line of Bhavin Vithlani from SBI Mutual Funds.
So 3 questions from my side. First is in the Unitary segment, if you could help us either 9 months or a quarter 3 basis, how is a broad breakup between room air conditioner, commercial refrigeration, commercial air conditioning and our air cooler business. That's the first question. The second question is again on the projects where a side of the extraordinary in your -- you mentioned there is ECL provision. So either what is the quantum of that ECL provision or if we were to take the ECL provision out, what is the underlying margins of that -- of the segment for the quarter 3 or 9 months? These are my 2 questions.
So if I look from the -- let me answer the second question first, to answer my first. If I look from the -- what you asked about is if I take out the ECL provisions and if I take out the exceptional item, obviously, reached to a level at which we were doing this profit or be recognizing this profit in the business. But we cannot compare, we cannot shy away from the reality so we have to take cognizance in terms of what kind of, I would say, provision we have taken up. And as I said, we take this as a pinch of salt, and we always seem to work towards improving it as we move forward. And you have seen some of the projects when we talk about the order inflow, we have reduced taking orders where we find are seeing some kind of risk. But those risks which I'm seeing today was or the kind of engagement, which is both actions taken by the contractors [indiscernible]. There was no need of reacting, I would say, taking this into from there. But having taken, I have to follow the consequences of the risk policy what we have, and we will take, I would say, a stock of the same. Now when you come to the question first, the contribution of CAC into the overall segment. If I look from the YTD perspective, the CAC will contribute around 20% odd in the overall AC mix. Probably when we go to the quarter 4, the percentage will be more towards the other businesses than CAC because quarter 4 is generally a season peer for that matter.
The next question is from the line of Gopal Nawandhar from SBI Life.
My question is more related with project only because in the past, we have been seeing such incidences at least for last 3 quarters, we have been making provisions also, you've provided the news which are related with these 2 projects. And when I compare with the peers like Blue Star and all in their project business, so if I compare by 6 years, quarterly margins, they are on an average 5% margin. And in our case, it is hardly 2%, 2.5% margin. So I just don't want to waste more time on this, but our advice from our side, can just put some more risk majors or either something which should be there, which can take care of such kind of events in the future, either in terms of margins or something else?
I do take your inputs into it. But if you recollect, if you see the past trend of all the companies who are in this business, we are -- even the Bajaj Electricals who have [indiscernible] their hands in electrical projects in the past. We do go to such kind of cycle...
I never compare Voltas with Bajaj Electricals.
No, no, I'm saying all companies -- No, I'm comparing, again, gentlemen, I'm just saying that. I'm saying all players in the project industry has gone through this up and down. I'm not -- I've just given Bajaj Electrical as an example. Blue Star is also an example. If you take Blue Star is also an example, [ chief ], you will take the last 3 -- if you go 3 years back into this project business.
L&T even a big giant being acting as a main contractor unlike a subcontractor us, has gone through this up and down in the margin cycle and the [indiscernible] of the [indiscernible]. It's a cyclical kind of business when the things are going good, business will -- and the business will continue to flow into it and you have a better kind of cycle on the working capital side. But if the things start getting some on quoted around, all these consequences follow. But having said that, we have taken a lot of measures in terms of -- you can see that my order inflow has not been -- last year, we have not secured more orders. The reason being is because we don't pick up the orders that we won't find the merit into it. We won't find the profit growing into it. But somewhere the other project which we evaluate that [indiscernible] wasn't right. And suddenly, this kind of action took place. I am not like to narrate the more story into it. But I'm sure that each player in those regions are actually facing headwinds in terms of that, not only Voltas.
The next question is from the line of Renjith Sivaram from Mahindra Mutual Funds.
Sir, just wanted to understand that from here on in terms of -- so because what we widely understand is, sir, Voltas was one of the biggest beneficiaries when we had this outsourcing model that most of the ACs were made in China or somewhere else, and we used to get it at a scale, we had this 1 million plus demand per annum. So now that from that outsourcing standpoint, now we are getting more into in-house manufacturing. We are forced to do manufacturing by the government itself. So in a structural way, you believe the margins will never happen because that low-hanging fruit of outsourcing is completely out of the window now, and now we have to focus on more of manufacturing.
Plus this new guys like Lloyds [indiscernible] coming and cutting prices. So is there any structural impact in the way we do business or -- and have we evaluated that, engaged with some consultant or something to get back to at least some reasonable margin level to cut our cost or work on those things. Just to get some idea on this aspect.
Renjith, if I look from the outsourcing versus in-housing, I would say that the players have to take advantage of the situation prevailing at that point of time. That doesn't mean that when I do in-housing, I start heavily bleeding into it. The scenario, which was -- or the strategy which has been adopted by Voltas in the past, most of the players have done it. I'm not talking about the Korean players. But most of the other players have followed those strategies, what we were following earlier and there's blindly followed the leaders in many of the cases as well. The question then comes is how I'm competitive when I'm doing the in-housing. When the government is forcing you to do carryout in-housing, it does give the incentive as well for getting out those kind of -- because government itself knows that there's a price gap. There's a gap between when you do in-housing versus what you do outsourcing. And those support also being announced by the government informed the PLI. The extra PLI benefit will start flowing when the commencement of the production facility will take place and the respective players' manufacturing capacity. To answer that, whether we try to go for a core of consultant and all, I would say that it's visible with the naked eyes. And what our strategy is very clear, whatever activities we do in-house. We want to start with breakeven between the outsourcing cost versus the in-house cost and accordingly to take any strategic call. If this is not the case, I would have announced in-housing for all the components which are ingredients to the air conditioner, but we have not done that. All players have applied a different kind of component under the PLI so it is not, I would say, a common thing which is coming out. The players are regulating the [indiscernible], their strength in terms of which component can give advantage in terms of the value addition, in terms of breaking even or in terms of direct, indirect savings in the cost. So this is the way in which the strategy in terms of in-housing or any manufacturing be a outsourcing, be in-housing be a -- both the models of outsourcing versus and in-housing, fix, I would say, best implemented for that matter.
But don't you agree to the fact that the cost has increased from some 2, 3 years before when we used to report some 13%, 14% margins to the current margin levels, your overall cost of manufacturing, how much would be the increase?
Renjith, if this is the case, then I should only make the losses and the industry, other players should have done the profit. But this is not the case. Which means all industry players, all players in the industry are witnessing this kind of cost increase. And accordingly, and furthermore, the price remains tight at the consumer end. This is leading to a margin erosion for most of the players in the industry. So I would not 100% agree in terms of increasing cost in those parallels because if you have a commodity price coupled with currency depreciation and adding into a normal inflation, which is not getting passed on to the end consumers, always the next impact is in your margin. And does it -- do we have a 0 inflation in the last 4 years in this country? No, we did have inflation and the inflation has -- should result into the cost. But at that point of time, the other factors were supporting me in terms of mitigating those risks. In this last 18 months, these all factors are trending on us on a southwards kind of trajectory, resulting into the increased cost of the inputs.
The next question is from the line of Amit Mahawar from UBS.
Manish, I have 3 quick questions. First is conservatively speaking, what is the closure date for both these projects? I'm sorry if I missed data on this.
For the second project, which we -- sorry, the impact which you take in the quarter 2, it's in a half way. And the process of completing this entire project being initiated by the main contractor and Voltas to a certain extent, may get chance as a nominated player in the balanced scope of work to get cover. But it is the, I would say, on a more optimistic side, that's what the peers -- that what we are getting from the main client, but we have to see where and watch when ultimately contract gets financed and gets awarded. For the quarter 3, which we have taken, you will be surprised that the project is almost over, and this action has taken place at the back end of the project.
Understood. Helpful. Second question is regarding -- going by the current expansion in the RAC Pantnagar hand maybe Chennai, et cetera. Broadly, move from 1 million to maybe 2 million in 2, 3 years' time. Can I broadly -- am I right in my understanding that our outsourcing largely can reduce to half in the next 2, 3 years, very directionally?
I would say that in this industry shift, it is difficult to say how the outsourcing will go down. Because if I look from the AC product, we are not there in the manufacturing of the motors. We are not there in the manufacturing of controllers, we are not currently in the manufacturing of the compressor as well. This itself accounts for a sizable part of my BOQ and the players and then to my best knowledge what I carry in this industry. None of the players in the industry are having in-house for all these 3 components. So to that extent, outsourcing will continue till the time we have the players are driving or seeing the benefit getting into the in-house. This is time these kind of play the leveraging of outsourcing, in-housing will continue. What I can say confidently is, if I look from the supply chain from import to localization, great move will be done in the next one and a half year, whereby most of the components will start growing in from my local manufacturers then getting imported from the overseas market. Aman, probably we have to end the call. We are just reaching to closing time.
Yes, sir, we'll take this as a last question. It is from the line of Praveen Sahay from Prabhudas Lilladher.
I have 2 questions. So first is related to the RAC. How much is a channel inventory -- how you are seeing the channel inventory filling for a summer, one. And second is related to the VoltBeko. How is the revenue and where we are in the breakeven which we had guided for FY '25.
Yes. So inventory, Praveen, if I look into it, is the time for the channel partners to start building up the inventory. So in the quarter 4, during quarter 4 I would say the inventory level with channel partner will go up, aligning themselves to the seasonal requirement. In terms of the Beko, I would say that in terms of the breakeven, we are still maintaining our strength by '24, '25 and that's what we are eyeing and heading for the same. In terms of the overall performance, I would say it's relatively better where we have done almost closer to 3 million units in a shorter span of time. And that, I would say, is a credible things to happen for any brand in the appliances who are moving in this category. So we are targeting our -- we are on the path of target. The only concern which comes on the 10% market share, which was another objective given the COVID period of time where the actual market has started seeing de-growth even in the current year, the overall refrigerator market is showing a downward trend. That objective probably will still -- will slightly take a longer time than '24, '25 we initially conceived for.
Okay. So just to continuation on the channel inventory side, you are seeing the similar level of channel inventory filling as of the last year or the normal years?
That way that they normally align because they also align only because seasonality in the appliance businesses comes one after the other quarter. So last quarter, you had this quarter, I would say, in the last quarter was more for a washing machine and refrigerator now this will move to the air conditioner. So they'll align the inventory share [indiscernible].
Ladies and gentlemen, that would be our last question for today. I now hand the conference over to Ms. Bhoomika Nair for closing comments. Thank you, and over to you, ma'am.
Yes. Thank you, the management for giving us an opportunity to host the call and answering all the queries of the participants, and thank you to all the participants as well, Wishing you all the very best, sir.
Yes. So from our management side, thanks to DAM and the participants to attend this call. I know our participants are going to have more questions than what has been put up in this con call. we are there to answer each one of you. And I will say that I thank everything -- thanks for your participating in this call and look forward to your support in the future as well.
Ladies and gentlemen, on behalf of DAM Capital Advisors Limited, that concludes today's call. Thank you all for joining us, and you may now disconnect your lines.