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Ladies and gentlemen, good day, and welcome to the Voltas Limited Q4 FY '18 Earnings Conference Call, hosted by Kotak Securities Limited. [Operator Instructions]I now hand the conference over to Mr. Ajinkya Bhat from Kotak securities. Thank you, and over to you, sir.
Good evening, everyone. Thank you for participating in Voltas' 4Q FY '18 Post-Events Conference Call. We have senior management of Voltas today with us represented by Mr. Anil George, Deputy Managing Director; Mr. Abhijit Gajendragadkar, CFO; Mr. Utsav Shah, Chief of Corporate Finance; Miss Asawari Sathaye, Senior Manager of Corporate Communications and Investor Relations. We will start with the management commentary first followed by a question-and-answer session. Over to you, sir.
Good evening, everybody. Analysis of results, quarter and full year ended the 31st of March 2018. There appears to be a sense of greater optimism across many parts of the world. According to a latest IMF report, global growth is expected to rise 3.7% in 2018. Growth drivers include a notable rebound in global trade, an investment recovery in advice economy, continued strong growth in Asia, a sizable upswing in emerging Europe and signs of recovery in the several commodity exporters. This supported by strong momentum, favorable market sentiment, accommodative financial condition and the domestic and international repercussion of expansionary fiscal policy in the United States will support and push the recovery. However, the headwinds of a possible escalation of a trade war between U.S. and China loom large, and the Korean crisis continues to remain. On the back of America's sanctions on Iran and OPEC move, oil prices have been steadily climbing up. The threat of inflationary pressure in the U.S. economy remains. India has been recording the highest growth rate among the new emerging economies of BRICS. Retail inflation at 4.6% for April was marginally higher than the previous month. The government is committed to addressing deterrents and roadblocks to growth with the progress of quality reforms, such as the implementation of the GST, the Insolvency and Bankruptcy Code, recapitalization package to improve the financial health of public sector banks, schemes targeted at Power for All and so on. As a result, of these measures, the economy is showing signs of growth, although the inflationary impact of factors such as the recent increases in oil prices, depreciation of the Indian currency needs to be watched. During the year, Voltas achieved a total income of INR 6,602 Crores, income from operations at INR 6,380 Crores and profit after tax of INR 578 Crores. In view of the stronger performance, the earnings per share, face value per share at INR 1 as at March 31, 2018, improved to INR 17.30 as compared to INR 15.64 last year. The Board of Directors has recommended a higher dividend of INR 4 per share at 400% as against 350% in 2016, 2017. Analysis by segment. Segment A, Electro-Mechanical Projects and Services. Segment's revenue for the year was higher at INR 2845 crores as compared to INR 2655 crores in the corresponding period last year, a growth of 7%. Segment results improved to INR 185 crores as compared to INR 85 crores last year, reflecting better quality orders and effective execution both in domestic and international business. The segment margin for full year are now at 7%, underlining the improved trajectory over the past several quarters. Carryforward order book of the segment stood higher at INR 5062 crores as compared to INR 4321 crores last year, a growth of 17%. New orders booked during the current quarter were INR 616 crores for domestic and INR 614 crores for international business. International operations. Our focus on effective execution of ongoing projects together with settlements and financial closure of older completed projects continues. These initiatives have helped improve operations. At the same time, we are conscious of the continued embargo in Qatar and are selective in booking orders in the region. We have earlier spoken on the Carillion plc U.K. contractor's filing for compulsory liquidation in January 2018. The company 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. Project certifications are picking up, and receivables are being liquidated as we continue to make progress on these projects. Broad-based pickup in economic growth is expected across Gulf Cooperation Council, or the GCC countries, in 2018. The recent sanctions announced by the United States on Iran and the cut on the oil production by the OPEC is also -- have also helped in driving up the oil price. Going forward, we propose to continue our approach of building our order book in a risk-mitigated manner. We have recently backed a contract connected with developments linked to Expo 2020. The total carryforward order book of international projects stands at INR 2004 crores, a growth of 14% year-on-year, offering the required forward visibility. Domestic Projects. The decision to focus more on government projects for externally funded investment has helped the Domestic Projects business to remain sufficiently protected against the impact of low investment and various liquidity issues faced by the private sector. With the government pushing the growth agenda, opportunities are increasing in electrical distribution, water treatment and smart city developments. Besides, the division's core area of HVAC projects has benefited with projects in large building and internal ventilation for metro transportation. Meanwhile, we continue to pursue various internal efficiency improvement initiatives, which although well for maintaining the margin. Our subsidiary, RIEL, has registered a full year profit in 2017, '18 through efficient execution of rural electrification projects. The current year saw an order booking of INR 2,149 cores. The domestic order book now stands improved at INR 3058 crores , a growth of 20% year-on-year as of 31st of March 2018, and provides a stronger base. Segment B, Engineering Products and Services. Segment revenue and results were INR 310 crores and INR 99 crores as compared to INR 332 and INR 96 crores, respectively, in the corresponding period last year. Impact of demonetization and GST implementation has been extra heavier on the domestic textile industry, leading to further slowdown in new capacity formation. Profitability of spinning mills was also under pressure during the year due to subdued prices for yarn and a steep increase in raw cotton prices. Banks are reticent to lend to the textile sector. Despite these conditions, the division's focused on providing value-added services and delivered profits. In Mining and Construction Equipment, Mozambique corporation continue to drive the performance. On the domestic front, the year was challenging with slowdown in mining-related activity. However, a gradual recovery appears to be on the horizon, and the company has reprioritized the India business. The government incentives on road development have been encouraging, and we are beginning to see orders in the crushing and screening equipment sector. Segment C, Unitary Cooling Products. Despite intense competition and aggressive pricing, Voltas continues to improve to its #1 position in the Unitary Cooling Products business with the YTD market share of 22.1% at Multi-Brand Outlets. Voltas recorded a 14.5% secondary sales growth for the year, while industry grew at 11%. Voltas has been able to close the year with a turnover of around INR 3225 crores. The segment's results have also been higher at INR 475 crores as compared to INR 440 crores last year. Our strategy of continued focus on both inverter, fixed-speed split ACs as well as window ACs has enabled us to address customer needs for different products. In particular, we have seen a growth in inverter AC demand from Q3 onwards. Our product range in inverter ACs has been a significantly enhanced to cater to this industry shift. Voltas Fresh-air Coolers sold approximately 207,000 units, a growth of around 38%. We are improving our market penetration through an expanded product range, a good value proposition, supported by better features, competitive pricing and deeper distribution networks. Commercial Refrigeration business, too, grew with an enhanced portfolio of new products, such as combo cooler, chest freezer cum cooler, and bearing capacities for existing categories in response to evolving customer needs. The Voltas joint venture. As you all are aware, the company has entered into a joint venture agreement with a leading European home appliance company, Arcelik A.S., to form an equal partnership for entering the wider consumer durables market in India. The entity will launch refrigerators, washing machines, microwaves and other white goods or domestic appliances in the phase manner under the brand name of Voltas-Beko. We are all scheduled for the proposed launch that is expected in H2 of calendar year 2018. This provides the company an opportunity to expand the established Voltas brand and tap into India's growing consumer durables market. In line with the government Make in India initiative, manufacturing facilities are being set up in Gujarat, leveraging the technological excellence and global capabilities of our joint venture partner. To sum up, we remain reasonably confident about the longer-term future, not forgetting that the nature of our industry is substantially dependent on the weather. In the immediate term, unseasonable sharp across some parts of the country, and the peak summer months of April and May have dampened the industry's spirit. However, it is too early to predict the impact of this on the entire year's sale. In the project space, we will focus on building a larger order book, advise continuing our practice of an intensive risk assessment. Needless to state, the strength of our balance sheet and the availability of cash [ doublets ] and the ROC exceeding 20% remains an advantage as we look at opportunities for growth. We now move towards the Q&A.
[Operator Instructions] The first question is from the line of Venugopal from Bernstein.
My first question is on cooling products. Just wanted to understand that, what would be the like-to-like sales growth for this quarter? And would it be fair to say that the pre-buy given that you had a very strong Q3 would have also led to some impact in this quarter?
Sorry, I didn't get your question. Can you repeat it? I think there was some scratching on the line.
Yes. Just to understand on the cooling products business, what will be the comparable sales adjusted for any taxes, et cetera, on a Y-o-Y basis for this quarter? And would it be fair to say that there would have been some pre-buy impact in this quarter's sales?
Sorry. Can you -- ask him [indiscernible]
Sorry, the -- can you speak a little slowly, I think, as you speak it through the...
Is it better now?
Yes, much better.
Yes, it is much better, much better now.
So on cooling products, just wanted to know how to do we look at comparable sales on a Y-o-Y basis for this quarter, adjusting for all the taxings that have happened? And my next question within that is to also understand, would there have been an impact of pre-buy in this quarter?
There has been an impact of pre-buy primarily in quarter three as you are aware that we had a new set of energy efficiency norms...
Excuse me, this is the operator. Sir, maybe, I request you to come a bit closer to the microphone, please.
Sure. I think we had some pre-buy, pre-buying in quarter three of this year because as you know that we had a new set of energy efficiency norms, which were introduced, which brought the energy efficiency norms for fixed-speed split air conditioners on par with the energy efficiency norms for inverter ACs. So there was a pre-buying, which we had talked about in our last investor call and primarily in quarter three. So in quarter four, we are not seeing pre-buying. Our typical experience of primary sales in quarter four is that these are sales in anticipation of the oncoming or the incoming summer season and which is what drives the sales.
I'm sorry. Actually, I think, just to clarify on my question, I'm aware of the pre-buy impact which was in Q3. So I'm aware that Q3 was fairly large on account of a pre-buy. I just wanted to know that in Q4, when you look at your reported sales numbers on a Y-o-Y basis, it looks flattish. So I just wanted to understand the drivers for the flattish growth, and more importantly, is it -- would there be a comparable number to look at Y-o-Y given that there have been some tax changes, et cetera, post GST?
See, I think just to clarify, the Y-o-Y comparison would not be fair because the previous year's numbers were inclusive of taxes and then with the current year number, post-GST implementation, are exclusive of taxes. So they are not strictly comparable.
Yes, sir. So just if you could quantify the number as to what will be the -- what would have been the growth in this quarter just from a perspective? Would that have been a 10% growth on a comparable perspective? Is there a way to calculate the number? What would have been a growth on a comparative basis if you were to adjust? Was it a 10% growth quarter, 12% or?
See, another challenge is that what you are actually talking about, what you are giving, the reported numbers, is the primary sales.
Yes, so I just wanted to know the primary sales like-to-like.
Primary sales, the growth has gone up by how much [indiscernible]
The primary -- the growth in the primary sales on a Y-o-Y basis would be around 6% to 7%.
Okay, yes, this is what I wanted to know, actually. And secondly, I wanted to know given the seasonality, season issue that were faced for a few days in April and May. From a growth point of view, from a summer season perspective, are we now getting back into a faster growth than the 6% to 7% we have delivered in Q4 on a like-to-like basis for primary?
Well, I think it is too early to predict what will happen in the whole onset of summer. As you know in India, for example, the largest market for air conditioners is North India. And the summer season in North India is, typically, we still have another 1.5 month of summers there because, typically, the monsoon sets in towards the end of May, early June from the south -- southern part of India. So we still -- so it is still very early to predict how the entire year will pan out or how this summer will pan out. But you are right that the month of April has been pretty sluggish.
And, sir, in terms of margins, what has been the key driver for expansion in the AC business, and is that sustainable?
So basically the sustainable margins as we have always mentioned -- maintained is about 11% to 12%. Now although the sustainable margins are 11% to 12%, we have probably delivered slightly better than those margins, and there are multiple reasons for that, which includes procurement, distribution, logistics, marketing spend.
If I might just add, this is incorrect to look at the margins of a business from a quarter-to-quarter. As Utsav has just pointed out, the margin for any quarter is an offshoot of the volume, which generates a certain amount of gross margin, offset by marketing spend, et cetera. So there is a kind of an absorption that takes place. So I should not look at a high-volume quarter, really, to gauge whether the market -- the margins have improved or not. On an annual basis, in the UPBG business, we have secured about 14% margin, yes. And this margin gives us a certain amount of security going forward in terms of tackling competition in terms of making additional market investments to protect our brand. That is what I would say.
The next question is from the line of Aditya Bhartia with Investec.
Sir, what proportion of industry sales, sir, this season would have been inverter? And how is the proportion of inverter for Voltas?
So we have had a gradual increase in our inverter sales as we have said in the analyst call. For the entire year, we have had about 20% of our sales incoming from inverters. And despite this proportion, it's much more skewed towards sales in quarter four, particularly, where it has...
It is edging. And if you look at the industry as a whole, Aditya, it is edging closer to 40% plus in terms of the change over to inverter. So it would be right to say that the trends towards the motorization is catching up much faster than what has been generally anticipated by the industry. So the question then moves into what are we doing. In our forward planning for the summer as well as for the year ahead, we are planning for much higher numbers on inverters, at the same time, not forgetting the fact that there is a market that is available for the fixed-speed air conditioners. And the price differentiate between the fixed-speed air conditioners and the inverters, currently is of the range of something like about INR 3,500 and odd, which is sufficient to actually push the sale off to fixed-speed inverters while also -- to fixed-speed machines while also ensuring that the inverters are going ahead in a strong manner.
Sure. And sir, how is the competitive intensity different between inverter segment and fixed-speed segment? And if you could also indicate whether margins in the inverter segment are typically lower or higher as far as the current intensity is concerned?
So I don't think we are able -- we'll be able to tell you the margins in each of our particular product categories. That information would not be really shared. So that was in the response to your second question. I think, your first question, if you would please repeat?
How is competitive intensity different between fixed-speed segment and inverter segment?
I would say that the competitive intensity is probably high in both the segments. If you see the current trend of advertising that most of the competition is doing, it has been -- a lot of it has been focused on inverter AC. And most of our competition have offerings both in inverter AC as well as fixed-speed AC, barring one competitor was taking a conscious goal to move out of fixed-speed AC.
Sure. And sir, one last question on the EMP segment. By when do you expect the HVAC orders in respect of metro trains to start getting awarded in a big way? And how do you see the outlook for rural electrification in water sectors?
Well, we are -- to answer your second question, on rural electrification, we are seeing a number of orders as we also said in our analyst write-up that our subsidiary, RIEL, which executes many of these contracts, has turned profitable during the year. So we are seeing a large number of projects being awarded in rural electrification. We have been selective in some of the states in which we have chosen to build and work on these projects. And so there are a number of projects being awarded at this time. And some of these projects are also backed by either central government grants or by institutional -- or foreign institutional support. On metro rail, we see some projects being awarded in some of the cities of the country. For example, there were projects awarded in the city of Calcutta in the third, in the last quarter and in some other cities. And Mumbai metro, unfortunately, these projects are not yet awarded for MEP portion of the contract.
The next question is from the line of Abhishek Puri with Deutsche Bank.
So first, on the inverter AC segment. I just wanted to understand for the Q4, specifically, since the energy efficiency norms have changed after that. So in Q4, how has been the market share for Voltas, specifically, and in terms of the overall sales, what has been the number? I think you've just given for the full year right now. And secondly, on the AC market share, you've mentioned 22.1% for the full year. If I recall correctly, for the last three quarters, your market share was well above 22%. So has there been a decline in Q4?
No. The market share that we are reporting from quarter-to-quarter can change a little up by a few basis points, up or down. What -- and if you recall, in the first quarter, the market share was something like about 19.7% or something. Let me verify if I remember right.
Yes, right.
So we have actually worked our margins up to 22.1% because at the end of the year in March, we actually got up the whole thing and looked at it and then we've got a 22.1% for the full year as foreign external agencies, reputed external agencies, that have set out secondary sales.
So for Q4, what was the number?
Q4 is in and around the same number.
Yes, I think that could be right thing.
Okay, and second question is on Voltas-Beko JV. Since you have guided for a second half launch. When do we get to see the marketing efforts and the launch? So basically, when will launch expenses be booked into the numbers? Would it be this quarter because I think Arcelik has guided for some EUR 30 million revenues this year?
Yes. But you look -- but I think I would answer it this way. The launch will be -- the advertising, et cetera, for the launch will happen around the time that the products are getting launched. So that would be part of the entire advertising and sales plan, which is -- which will be worked out and which is being worked out right now.
So is it June, or is it September now?
Some part of the -- because you have festivals falling in different parts, well, in the country at different times, we will coordinate this in a manner that we are able to pick up the advantage of those festival-oriented sales. So that's how we would like to really say at this particular point of time rather than really say that this is what we doing, et cetera, and get the competition to be throwing money around advertising around that time.
The next question is from the line of Manish Poddar from Renaissance Investments.
I just have one question, can you circle down how much were the units sold in coolers in this year as a whole?
207,000.
207,000 coolers were sold.
Sorry?
207,000.
207,000.
211,000?
7. 7,000.
7. 2-0-7, triple 0.
Okay, sorry. And just one small thing, if I may, is there any sort of expenses, or I don't know if losses would be the right term, for this Arcelik JV should one build in for into FY '19?
You do understand that equal JV is 50-50, right? So the turnover and the profitability of that is not aligned line-by-line into our P&L. It comes in as a separate line. So if you look at our -- go down the press release, you will find that there is a share, which is down below after the PBT, which represents the consolidation of the way these companies where we have joint venture partnerships but do not have effective control. The percentage of that is consolidated in that. So 50% of whatever has been spent in terms of expenditure or whatever the gains in terms of profitability will be allocated to that line and will add onto overall profits of Voltas.
I'm just trying to understand that for your FY '19. Is there a number which at certain level of expenses or to certain level of losses you find...
We don't give forward estimates on any of those, just as we don't do it for others business. We would not want to comment on it as far the World Bank is concerned. But you need to be rest assured that we will manage the business in a manner that the overall profitability of the company with -- together with the joint ventures and subsidiaries are well protected.
The next question is from the line of Harish Bihani with SBI Mutual Fund.
Sir, can we get the primary sales number for the full year and the industry number too?
Harish, we have always been discussing continuously on secondary shares, secondary markets and what -- how does primary help?
Because you report primary sales in your P&L.
So it’s okay, finally at the end of day whether it is market share or whether it is anything.it is all dependent on secondary sales.
I am unsure whether, historically, we have been giving primary sales or secondary sales. I was presuming that we were sharing primary earlier and which is why I am trying to understand this.
Whenever we talked about market share or anything, it is always because market share is not what I claim the market share to be. Market share is what a reputed third-party organization determines by -- on the basis of a survey of various selling points across the length and breadth of this country. And that's what we have been quoting always as market share. In terms of our primary sales itself, if you really look at the change with the vis-Ã -vis last year's numbers or vis-Ã -vis the last quarter's number of what we have done, you will get an indication of the total primary sales in terms of value. We would not want to defect separately to what is volume and what is price and all of those things. Those are our business advantages which we would like to keep close to our heart.
Sure, sir. Okay, fair enough. And secondly, if you look at the last few years, your cash balance is extremely high. Now your dividend payout is about 20% odd, which has been there for several years now. How do we understand the capital allocation better? If you -- is it something that you've been preparing for some acquisition and you got some opportunity, finally, it could not conclude? Or -- so essentially, if you can just elaborate a little more on the capital allocation, this is a fairly large amount which is been there for multiple years, that would be really helpful.
Like with any other company from time to time, we look at all our resources, including our cash resource. One of the ways of utilizing this cash sensibly has been in getting in to the joint venture as we have just started on embarking on that process. The award already invested some amount of money into buying land at Gujarat, as we have said, Abhijit has said -- mentioned in his write-up. And there will be more expenses to follow. Meaning, you can be rest assured that the Voltas JV is not going to turn profitable from year 1. There are going to be marketing investments that need to be done, and after that, you will find an L-shaped kind of growth both in terms of our own consumer durable sales and as well as the profitability that accrued therefrom. So that's one part of it. Right now, we do from time to time look at possible targets for acquisitions, for expansion of both organic, inorganic, et cetera, but we are equally conscious about the fact that we don't want to be dawn by the fact, just the fact that we have cash on our balance sheet into buying something that might not be long-term cash accretive or long-term profit accretive. Our consistent motto has been profitable, sustainable growth. So please be assured that we are not going to be continuing to keep this cash just unutilized over a longer period of time, but at the right time, we will make the right moves and create further value for our stakeholders.
And if I may just ask, which areas of interest you -- apart from your core business where, air conditioning, you require a little capital and maybe you'll start investing a little more. The Voltas-Beko, you are investing, but again, you have fairly large cash balance. You are throwing lot of -- huge amount of free cash year-over-year. So is there any particular area or couple of areas where you're looking at where potential opportunities would arise and maybe you would want to kind of evaluate? That would be very, very helpful.
Look, we don't believe in going out into something that is totally unconnected from our business line because we have a certain understanding of the business that we are currently doing and we have certain capability in running those businesses appropriately well. As you might have observed, we have over a period now, I think, the last, from about the first quarter of 2015, '16, we have been consistently moving our needle up on the project business. Today, we are happy to say that, for the full year, we have a margin of about 6% to 7%. So now that gives us a certain amount of confidence to invest more sensibly into certain lines like that. I'm just giving there as an example. Similarly, there are a number of other things that we are doing within the confines of our business which we can do better. And I don't want to be talking about each of those things for example. A certain amount of sensible market investment at the right time can propel our brand value as well as our sales much, much better. So these are options that I don't think I'm in a position to discuss with great detail, but please be assured, as we have been showing you, improved profitability year after year, quarter after quarter. Please be assured that your investments are safe and are being dealt with in the most elegant and appropriate manner.
Harish, in the immediate future, the first thing which is going to happen is the funding for the JV, where already INR 650 crores commitment has been built by both the partners.
The next question is from the line of Charanjit Singh with B&K Securities.
Sir, actually, I would like to understand there has been a significant increase in the raw material prices of late. But our gross margin levels, we have been able to kind of maintain the similar levels on a Y-o-Y basis. So how you see that we have been able to pass on certain price hikes, or how do you see that going forward? Also, maybe the inventories are at a lower price, and we can see the impact going forward in Q2 onwards. Can you comment on that, please?
I think there are a number of factors that one needs to look at when you look at the impact of commodity price. One is that we had, in many cases, we had older price contracts with vendors, particularly our overseas vendors, which ran until quarter three, quarter four in previous remainder contracts, which are, in some cases, negotiated for the entire season. And there was also older stock that was available with us particularly since, if you recall and go back three quarters, quarter one, we had a shortfall in primary sales or low primary sales, primarily because of GST-related impact where our [ first-hand ] and distributors did not pick up stock in what has historically been not a good month for sales. But post the GST, we also had the benefit of some input cost credits which were not available to us in the pre-GST era. And if you also say that our revenues, and I think this was a point made by both Utsav and Mr. George earlier, that our revenues for '17, '18 and for '16, '17 are not strictly comparable to the entire turnover is lower post GST. So if you add up all of these factors, that is reason why you are seeing this level of margin. In addition to that, as India, also, have been very conscious, and I think Mr. George mentioned of sustainable, profitable growth. So in addition to that, anticipating what will be impact of commodity price hike, we have also been very diligently working on value engineering initiatives, cost reductions initiatives in order to try and protect the margins. So it's a combination of many of these factors that has led to this.
So sir, do you think like the -- when do these price contracts will come up for the negotiation? And do you think that there should be certain price hikes which could be passed on by the suppliers because, based on our discussions, some of the largest compressor manufacturers, the Chinese market has been growing very significantly and they want -- they have been raising prices on the compressor side?
I think that's a very good question. Actually what's happening in the Chinese market and as well we're aware of what's happening on the commodities, we're aware what is happening on the foreign exchange, et cetera. So there is a certain point after which we can absorb the cost. There is a certain point after which we can mix the balances out with cost efficiency programs that can be internally done. Post that, I think there will come a point when we will need to take some kind of price increases, but that does not again mean that we will take a price increase across the border all over. We will selectively increase the prices if it need be to protect our margins. But as a market leader, we don't -- yes, we are quite conscious of our role, and we would like to see how best we can really balance the whole thing out. At the end of the day, the truth is that we must protect our margins, and we must grow our volumes. So it's a little bit of a balancing act between both of these. But you're right that the cost -- input costs are going up, and we might come to a point where we might really think that we might need to do something in terms of the price increase. But it is too premature right now to say that I have a closed mind, and I'm going to be taking a price increase right away right now.
And for last question from my side, if you'd like, the April month has been quite weak in the northern market. So what's kind of inventory levels which we'll be sitting on and -- if the season doesn't pan out? So do you think the inventory levels can lead to maybe some pricing cuts, significant discounting by the events?
I think, it is too -- as I've said in response to an earlier question, it's probably too early to talk about what -- how the season will pan out. Because we are right now sitting at mid of the year, we still have about kind of half of the season or a little longer in terms of the main markets that is North India. Also, I would say it is too early to talk about how the season will pan out and, therefore, what impact it will have on the inventory levels of the channel.
The next question is from the line of Shrinidhi Karlekar from HSBC.
Sir, I just wanted to understand the FY '18, the AC comparable revenues, if it's possible, because it seems secondary volumes have grown by 15% and presuming the primary could be close -- a number which is close to that, there was a mix benefit, I guess. So would it be possible to share what was the comparable revenue for the full year '18 in the AC segment?
If you want to -- simply take it on a comparable basis, the revenue for FY '17, '18 was lower than -- lower by about INR 250 crores to INR 300 crores as compared to the same period Last year.
And this is in the AC segment, right?
Yes.
Yes, for the AC segment. Yes.
Okay, fair enough. And sir, like you can see, our the segment profit at the -- in the -- if you see the segment, it has grown by something like 8% for the full year, which is a bit lower than, what does secondary sales would be, like 15%. So it seems like the underlying margins have gone down, but it looks like comparable because the number -- denominator is understated because of just accounting changes. And we have in inverter AC mix, which is, which has benefiting us. So would it be , just want to understand that is that understanding correct, that underlying margins are down a bit?
No. The underlying margins, if you really look at it, is around 13.7% here, based on the 3,500 number that Utsav just spoke to you about, yes. But it is still within -- but just to remind you that this is the highest in the industry, and that has been consistently maintained at the -- within the range that we have been promising to the market.
The next question is from the line of Nitin Arora from Axis Mutual Fund.
Just a small clarification I wanted. You said that the market share, we have not lost any market share in the year as well as in the Q4 and we have grown our like-to-like basis about 7% in the cooling product versus the industry growth of 11%. Is that correct?
I am not sure the 7% and 11% numbers.
You get that.
As far as secondary sales are concerned, for the year '17, '18, industry has grown by 11% and Voltas has grown by 14.8%. This is for the year '17, '18.
Full year.
Just one last question. I know we've been talking on the April has been bad and still 1.5 months to go. What sort of weakness you have seen. I don't want that number on a Y-o-Y basis, but is there something, a very sharp decline we have seen in 1.5 months' time? Or you think that if 20, 25 days becomes recoverable, we are still on a track over -- of a 15% or a 20% industry growth? That's my question.
I think there is one, I don't want to get into the numbers and how much of shortfall we have seen, but I want to answer this more from really the buying behavior of the buyer. I think there are many studies to indicate that what really guides the buyer to the market is really one hot weekend. So it's really sometimes very true that one suddenly sees those forward in secondary sales are driven by a very hot weekend that drives buyers to the showrooms. So in this industry is very weather dependent. So we are a year ago, or whatever is the -- has been the impact in the first -- in the month of April and in probably in the first 10 days of May. We need to watch out as to how the weather will pan out over the next few weeks and over the next 2 weeks.
The next question is from the line of Venkatesh B. from Citi.
Sir, is it possible bit you to share what exactly is the total equity investments that are required from the behalf -- on the behalf of Voltas into the Beko JV? What are the exact amounts? How much have already been invested? And how much more needs to be done?
I think we have said that the total investment would be about USD 100 million, which will be shared equally between the two partners.
That's the initial investment.
That's the initial investment.
And apart from that on a year-to-year, we have a plan on the investment that we plan to make jointly partners into Vol-Bek in order to achieve a certain kind of market share in the consumer durables business. I'm sorry that I cannot share those numbers with you because those would be our exclusive business strategy and direction.
So this, your share comes to $50 million, correct?
Yes. [indiscernible]
Yes. That happens only for the fourth quarter Initial investment. That's obviously you cannot just run a business with initial investments. When you launch, you will need marketing spend. Once you do that, after that, you will need to be adding on numbers. That's a whole lot of -- you're starting practically a new business. Although we are, we are sitting on a huge advantage on the fact that we do have a distribution setup. But there would be a number of other things that we require in terms of making sure that the business starts off well and continues to retain its power forward as we would like it to.
Okay. Sir, the second question is on the electromechanical business side. Your fourth quarter margin was 7.6%, and your full year margins were 6.5%. What do we take as likely going forward? I mean, can you assume this is going to be a 7.6% next year onwards?
I think we've always said that we do not give forward guidance. That's why, I think, number one. And I think, secondly, I think we have also said in the past that particularly in the project business, one would -- it would not be right to look at one quarter's margin. I think this tends to be influenced by a variety of factors, as we've said in the past, the stage of the project, the stage of completion, starting of new work, completion of old work, et cetera. So I think we have said that what you have seen the last few quarters has been a gradual improvement in the margins, which is a result of the conscious initiative that we have put into place, both in terms of execution of our projects and in terms of selection of our projects.
Okay. Having said that -- I would just add to what Abhijit has said that the industry were -- time and again, we spoken about a number of legacy projects that we were burdened with. Now all of those legacy projects, save for there 1 or 2 things which are totally -- were not within our direct control, such as Sidra, which is like an issue between the main contractor and the client. So that keeping that apart, most of the legacy issues, we have cleared that out. And I can say with a certain amount of confidence that the quality of our order book is -- represents the promise of good profitability as we go along. But projects businesses being what they are will have its ups and downs as we go ahead. But we expect to be able to manage it to return a decent amount of profitable gain. And as I have mentioned earlier in my con calls, we are really looking in on a long term basis, if I can't make at least 8% in terms of the return on sale then there is no reason why I should be in this business.
Pardon me for asking this question again. I did mention about the UCP business. Now I didn't seem to understand this part that, actually, the reported margins are 14.7%, but actually, the underline margins are 13.7% if you adjust for GST. You mentioned something like that. There is [indiscernible] which is incorrect...
Yes, that's because -- this is because the turnover for last year is exclusive of taxes developed this year. It is this result of taxes once we come to the GST margin.
The way that the turnover was accountable in the pre-GST was including certain taxes in the top line. Post GST, those have been stripped out. So comparable is that we actually have something like about INR 3,530 crores and the turnover of Segment C . And so if you apply that on a like-to-like basis to compare it with the previous time, against the reported number of 14 point whatever, we will now be -- it will actually be 13.7%.
13 point, yes. 13.
Okay, okay. Sir, and lastly, this -- I went back and saw the numbers which you have given in your press releases in the past. First quarter, you had mentioned your market share was 22.2%. Second quarter, you mentioned it as 23%. Third quarter, you mentioned it at 23.7%. Now your full year press release say that it's 22%. So it seems like there has been some amount of market share loss in the fourth quarter. So why -- what exactly has been this reason for the -- it's not like a major loss, but yes, there has been -- you have ceded around some amount of share in the fourth quarter. What would be the reason? Have you been very surprised by the pace at which inverter AC sales have picked up in the fourth quarter and maybe you are not as well-prepared as everybody else that is why you have lost market share? Could you throw a little bit more light...
Lost market share, I'm not very sure about that. See, the third-party research that has been done to establish the market shares always has a certain degree of up and down. So it is not at the time that is the complete in terms of -- it gives you range, so a certain amount of range in terms of what we see whether it is a the month-end figure that you are looking at or it is the quarter-end figure, this is the average for the full year. This is the average for the full year as opposed to what we might have reported and said that in March, we said on September, we have December market share of 23.7%. You can't just [outright] it exactly.
The next question is from the line of Pulkit Patni from Goldman Sachs.
Actually, most of my questions are answered. Couple of bookkeeping questions. Firstly, out of the total order book, what would be the order book for Rohini today?
Rohini. That's just rural electrification, so about 40% of the domestic order book is on rural electrification.
About 40%. And then secondly, would it be fair for us to assume that a large part of this improvement that we've seen in margins for the -- for Segment 1 is because of the significant turnaround in Rohini that we have seen?
I think it's the combination of Rohini plus the improvement in projects in international business that, I think, Mr. George answered in response to an earlier question. As well as some of the impact of -- in the past we might have had some impact of some legacy projects in the provisioning that was required on that. As well as improvement in some of inefficient execution in some of the other domestic projects. So it is not attributable to only one factor.
Sure, sir. And sir, lastly, if you could share what is the total amount of spend on advertisement and sales promotion for the year.
Yes, advertising expense for the year is in the order of about INR 70 crores.
That's only an advertisement, not marketing spend.
The next question is from the line of Bhoomika Nair from IDFC Securities.
I just wanted to know, in the fourth quarter, what would have been industry growth versus our growth of about 6% to 7%?
Fourth quarter industry grew at 5.2%.
Okay. And just to clarify, you said that the industry has moved towards 40% inverter, and for the average for the full year for us, it was about 20%. What would it have been for, particularly, for 4Q inverter sales as a percentage of total?
Close to 30%.
Okay, okay. Sir, the other thing was I just wanted to understand channel inventory had gone down post GST and perhaps would've gone up again for -- in the third quarter prior to the table rating. How was it at the end of the year versus what it is on a Y-to-Y basis?
The channel inventory, if you look at it, this is -- while -- generally, the inventories with the store -- with the stockers and the distributors is a little higher this year because everyone has been stocking, stocking up in anticipation of great summer. So it's not really gone up in terms of secondary sales. Because the sales that you are seeing in both the months of April and May have been parked below the general industry expectations because of the inclement weather. So the inventory in the channel is likely to be a little high, but let's wait. The summer is not fully over yet. We have not -- so there are number of days that can make a difference, and also, there is second summer that comes in later as you know. So we'll add it's little too early to call it and say that though the inventory is down so much in the industry will never get on further sales. So we don't come to those kinds of conclusions. We wait with the hope and anticipation that things will be better.
Okay, okay. And lastly, I just want to check how have the price hikes happened in the industry, both have we taken any price hikes and have other peers also taken any price hikes, over the last 2 to 3 months. If you can just comment about that.
I think we have not taken any across-the-board price increase, but there have been some -- there have been certain price adjustments. Particularly, these adjustments have been a result of the changes of Star ratings in fixed-speed as well a price adjustments in certain categories of inverter ACs.
Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.
So thank you, everyone. Thank you for participating in this conference call for the year-end results. And once again, our apologies on behalf of the management for having to change the time of the call from 4 p.m. to 5 p.m.
Thank you very much, sir. Ladies and -- sure sir, go ahead please.
In case any other question has remained unanswered or there are any more clarifications that anyone seeks, request that you can kindly connect with the team, and we'll be able to help you out on that. Thank you.
Thank you very much.
Thank you.
Ladies and gentlemen, on behalf of Kotak Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.