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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 Q4 and FY '19 Earnings Conference Call hosted by SBICAP Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhineet Anand. Thank you and over to you, sir.
Yes. Thanks, Steven. Welcome everybody to 4Q FY '19 Voltas con call. We have with us, from the management, Mr. Abhijit Gajendragadkar, CFO; Mr. Utsav Shah, Head, Corporate Finance; Ms. Asawari Sathaye, Corporate Communications and Investor Relations.Over to you, sir.
Good afternoon, everybody. Analysis of results quarter and full year ended 31st March 2019, the IMF forecast for 2019 indicates a global growth of around 3%, lower than growth rate for previous years. In recent months, geopolitical events, such as trade tensions, sanctions, et cetera, have further affected the global growth. In India, a recent Ministry of Finance report has pointed out that a slowdown in economy across 2018-'19 due to the declining growth of private consumption, a tepid increase in fixed investment and muted export. However, India continues to be the fastest-growing major economy and is expected to largely maintain the trajectory. Against this backdrop, Voltas' total income during '18-'19 increased by 11% to INR 7310 crores, but there has been pressure on profits due to various reasons explained in the note. The Board of Directors have recommended a dividend of INR 4 per share that amounts to 400%. We move to Segment A, the Unitary Cooling Products business group. This fiscal year has been very challenging for the industry and the company. The slowdown evidenced due to erratic summer conditions last year continued during the year, leading to an industry de-growth of 3%. The cumulative impact of the depreciated rupee, inability to pass on the higher cost and custom duty increases has reduced profits and margins compared to the previous year. The segment results are therefore lower at INR 325 crores as compared to INR 475 crores last year. In the first 2 months of the current quarter, the delayed onset of summer and the channel inventory impacted primary sales. In fact, inventory carried by us since last summer was liquidated only recently as end consumer sales picked up mainly during the latter part of March. As a result, a portion of primary sales, which typically would have formed part of quarter 4 sales, has been shifted to quarter 1 of the next financial year. Given the intense competition from existing players and a significant number of new entrants, this quarter witnessed more consumer offers, leading to higher sales and distribution cost. Additionally, there were few one-offs, including short settlement of insurance claims for a fire in one of our warehouses and floods in Kerala. We are happy to report that Voltas continued to be the market leader, increasing its YTD market share across Multi-Brand Outlets from 22.1% to 23.9%. Meanwhile, the company continues to focus on expanding its reach across the tier 1 and 2 cities, opening brand shops that will also leverage the entire range of consumer durable products from Voltas and Voltas Beko. The brand further fortified its leadership in the cooling category through launch of Voltas Adjustable Inverter ACs for summer 2019. These ACs run at different cooling capabilities, catering to the different cooling needs of the user and comes with a unique value proposition of Flexible AC Technology. This new range is also environment friendly, smart, intelligent and increases savings for the customer.Given their very seasonal nature, the year has been even difficult for Air Coolers, and Voltas too has registered a de-growth along with the industry. Even during this period, the good news is that we are seeing a shift of preference from unorganized to organized sector. The company has launched 29 SKUs of its new Voltas Fresh Air Coolers with Smart Humidity Controller under various categories such as personal, window, tower, desert air coolers. In the Commercial Refrigeration space, we have further strengthened our position by introducing new products such as Convertible Freezer, Freezer on Wheel and Curved Glass Freezer. The company has also launched newer models of water dispensers and water coolers.As mentioned in our last quarter call, the company has invested in a land parcel near Tirupati to set a manufacturing facility for cooling products. This facility will cater to demands from the fast-growing southern and western markets. Once operational by end 2020, the manufacturing facility will enable greater cost and operational efficiency in serving these regions.Segment B, Electro-Mechanical Projects. Segment revenue for the year was higher at INR 3619 crores as compared to INR 2845 crores in the corresponding period last year, a growth of 27%. Results for the year improved to INR 277 crores as compared to INR 185 crores last year, reflecting better quality orders and effective execution both in domestic and international business. The segment margins for full year are now at 7.7%, underlining the improved trajectory over the past several quarters. Carry forward order book of the segment stood at INR 4976 crores as compared to INR 5062 crores last year. New orders booked during the current quarter were INR 392 crores in domestic and INR 626 crores in international. Domestic Projects Group, DPG. The Domestic Projects business continued its steady performance this year with majority of orders coming in from the electrification sector and infrastructure space. Our strategic focus is on procuring government and government-funded projects with reasonable assurance of cash. With the increasing support and an approaching time line on the electrification program through the Saubhagya Scheme, we are seeing even more tender announcements and completion of -- for rural electrification projects. Our subsidiary, Rohini Electricals, which executes electrical projects, now contributes 40% to the domestic order book. Due to the improved performance, a 50% reversal of the impairment of Rohini investment in Voltas books has been made possible. The recent announcements in the interim National Budget 2019 on investments in infrastructure, including metros and airports, smart cities, cleaner water, healthcare and educational institutions is expected to increase opportunities in the projects segment.The thrust on efficient execution of projects by the division has been externally recognized. We received a number of awards in both UAE and in Oman, including the District Cooling Company of the Year, the Facilities Management Company of the Year and MEP Contractor of the Year. Besides MEP, we are looking at strengthening our order book in facility management and water management solutions.With an uptick in oil prices, broad-based pickup is expected in the Middle East economy. It appears that the hitherto deeper concerns on Qatar due to political issues are beginning to abate. Meanwhile, we have extended our reach to a new geography having secured an order in Bahrain. Early this year, we had mentioned certain issues surrounding main contractor joint venture partner, Carillion in Oman. We are facing some delays in payments, and our efforts with the JV company and the main client are continuing. Segment C, Engineering Products and Services. The segment maintained its steady performance during the year despite external headwinds. Segment revenue and results were INR 312 crores and INR 105 crores as compared to INR 310 crores and INR 99 crores, respectively, in the corresponding period last year. In the Textile Machinery business, there has been a pressure on the industry due to declining yarn prices and ambiguity on implementation of state-specific policies. Our focus on after-sales business to mitigate reduced sales of capital equipment continues. In Mining and Construction Equipment, Mozambique operations contributed significant share to the division's performance. Voltbek Home Appliances Private Limited. Post the product launch, the feedback from trade for Voltbek products has been encouraging, and end users have particularly appreciated the Made for India features, which included strategic storage store fresh facilities for refrigerators and 26 stain removers for washing machines. The newly launched brand is steadily making progress in increasing its distribution reach to more outlets, particularly in tier 2 and 3 cities, in addition to enhancing its presence with power retailers in the main metros.The products are competitively priced, and the product range has been widened with the launch of 31 new SKUs of refrigerators, including bottom mount and side-by-side refrigerators. Further, Voltas Beko has also launched 5 new SKUs of front load washing machines with AutoDose Technology, that's the first in the industry, 12 SKUs of top loading washing machines with dual power rain and a tabletop dishwasher suited for Indian kitchens. The thrust of the JV in the current year is to expand the distribution, widen the product range and to build a manufacturing site at Sanand as per planned schedule. In sum-up. The summer has started well this year, and we are hopeful that the growth trajectory will continue. The development on U.S.-China trade tensions and the Iran sanctions need to be watched for possible impact on the world economy. Back home, the election results are being watched closely. The longer-term prospects of the consumer durables segment in India are robust given the low penetration. Specifically, in air conditioners, improvements in consumer confidence and disposable income, availability and cost of power will drive growth. We remain cautiously optimistic about the longer-term future, not forgetting that the nature of our industry is substantially dependent on the weather. In the projects space, we will focus on building a larger order book, albeit continuing our practice of extensive risk assessment. Needless to state, the strength of our balance sheet and the availability of liquid surplus remains an advantage as we look at opportunities for growth. With that, I -- we now open for a Q&A.
[Operator Instructions] The first question is from the line of Aditya Bhartia from Investec.
My first question is on the UCP segment. Could you please share some growth trends that you are seeing in different product categories of the UCP segment, room ACs, commercial refrigeration and air coolers?
The previous year or this year? Are you asking for the current year?
Yes, for the current year as well as this quarter.
I think the revenue numbers for the quarter are available with you. I think we're all in the air conditioner segment, we have mentioned to you that the industry has de-grown by around 3%. And our growth has been slightly lower than the industry. It has been almost flat given the fact that we have also supported the fact that we have increased our market share during the period. In the air cooler segment, with the industry de-growth, there are very limited amount of reliable data available in the air cooler segment. But the entire industry has some de-growth. And -- but the important point, which we have stated in our data and which is important to note and what we have been talking about is the shift from the unorganized to the organized industry. So this, in a way, bodes well for all of the air cooler companies that are in the organized sector. And that's a trend that will probably continue and accelerate over a period of time.
And what about commercial refrigeration, sir? How strong has been the growth this quarter as well as this year? And how do see the outlook for that particular category?
The commercial refrigeration is -- it's not possible to answer your question directly in the commercial refrigeration space because there are a wide categories of products and not everybody who moves in the commercial refrigeration space participates in every part of the segment. There are certain segments which we participate, and there are various ways that these segments are grouped within the commercial refrigeration. And some of these are B2B segments where there is -- or data is difficult. And so it's difficult to have one number for the commercial refrigeration segment.
Okay. But would this product category have grown this year? Or do you think that there were some weakness in this category for us?
Well, there has been some weakness in the category in the commercial refrigeration as well. Some of these -- you must also recall that we have mentioned in the past calls that in commercial refrigeration, a large part of the sale are B2B sales. These are B2B sales that is sometimes dependent on institutional orders and also in terms of how certain institutions place their orders. So you may have very lumpy growth at times in this category.
Understood, sir.
And then a very small part of this category, which you might have seen, which is in a sense somewhat akin to B2C products are sold through a distributor, et cetera. And so relatively smaller part of the total category.
Understood, sir.
[Operator Instructions] The next question is from the line of Bhavin Vithlani from SBI Mutual Fund.
Would it be possible for you to quantify the size of the commercial refrigeration air coolers segment for Voltas? My second question is have you seen a bit of a drop on the segment margins? But the year as a whole looks okay. But how do we see the segment growth going forward? And how do you see the profitability of the projects business in fiscal '20?
You're asking about the UCP business or...
So my 2 questions, please. Within the UCP, what is the revenue of commercial refrigeration? And the share of -- what is the revenue of air coolers? That was one. And the second is the outlook for the projects business in fiscal '20.
Okay. So we are -- we do not give the category-wise revenue within the UCP segment. And I think you -- one of the questions you had asked about was the size of the commercial refrigeration industry, which again, I responded to the earlier question saying that this is a fairly large category with different types of products, in many case, customized products, B2B products, so it is difficult to give a 1 answer to your question. And therefore, you will find that there would be many studies which would be quantifying the size of the industry in different levels. And you need to understand and get into the details of the calculations to understand which products exactly are being talked about within the commercial refrigeration space. And therefore, this category also is something which tends to be not completely comparable across various companies. Your second question was on the margins for the projects business. Did I understand you correctly?
Yes. So it was -- we saw a drop for this year. What should we be considering as the sustainable margins and the growth rate for the projects business going forward?
So I think we have talked in the past that we should not look at a quarterly margin in the projects business. There are various factors, which then make the margins lumpy. At times, there could be certain settlements of all the projects, there could be certain contingency releases and various other factors in the project business, which tends to make the quarterly margins lumpy. And we have seen this reach already if you want to take a trend line across many quarters, you would see that -- you would find some similar focus. So I would say the yearly margins that we have reported for -- in the current year for the projects business Segment B is around 7.3%, and this has grown as compared to 7 -- 6.5% in the last year. So I think it's a little higher in terms of percentage points to about slightly over 7.5%. And we are -- we have been mentioning to you that over the sustainable long term, we are looking at a 7% to 7.5% margin in the project business. So that is -- we had given these levels of indications in the past, and we continue to stick to this level.
And growth rate for the projects business, revenue growth?
Very difficult to talk about because, primarily, it all depends on project execution. So I would suggest that in the project business, a good way would be to look at the order book and to translate that into the revenue growth. Because, again, the cycle between project's revenue realization and order book -- getting an order, and sometimes, getting an order and starting the work also tends to be somewhat long. So all of this make it a little difficult to give a precise number for the growth rate on the projects business.
The next question is from the line of Venugopal Garre from Bernstein.
On the UCP business, I just wanted to understand what the -- sort of how good is the current situation? Now given that inventories have become lean and summers have picked up quite strongly, especially over the past 1 month, does it sound like a normal intense summer season where demand is picking up in Voltas air coolers and air conditioners? And is it a good enough environment to also do any price actions to increase prices to offset the sort of margin pressure that we have seen? And would that imply that -- from a margin band perspective, if you could give us an idea of what could be the situation for this year. That's my first question.
Right. So we have also reported that we have seen a little bit of a late onset of summer this year. And -- but after that, we are all witnessing, and I think many of you who are around, you might have seen that we are seeing fairly high temperatures during the month of April and in the first 8, 9 days of May. And this is something which has led to a good growth in the overall market, particularly in the month of April. And with the inventories of the channel also being at a stable level, this would, I am sure, reflect in the primary sales as well. So the growth in the summer has been, to answer your question, in short, has been a normal summer. And that is, I think -- we hope that this will continue as we progress through the months of May and June. You will also recollect that the summer is not at onetime across the entire length and breadth of the country. It typically tends to start in the southern part of the country and, in general, sort of move upwards. And there are parts of India which are summer even during the months of -- from mid-June until early July as well. Your second question was on -- relating to price hike. They're also -- there are obviously many factors which determine a price hike. And one of the major factors which will determine and which really is a factor in the industry is the very significant competitive nature of this industry. You might have seen from various reports and from various advertisements out in the press that we have had -- we have a lot of competition, not only from the established players in the industry, but there have been a number of new entrants in the air conditioning space as well. So the competition is both widespread as well as very significant with both a number of older and newer competitors in the trade.So obviously, any price -- in the region, any price hike is a function of the competitive intensity. And sometimes, it's a function of competitive intensity in different parts of the country, in different markets across the country. So as we have guided you in the past, our approach has been of selective price hikes depending on either a region or the model, again, and the SKU within that because there may be certain SKUs which may have certain more demand and -- rather than an across-the-board approach. And that is something that is being looked at very closely by the sales team going forward.
And sir, the margin band that you would look for this year?
Sorry?
The margin band that you normally share, is that the same band that you would work with for this year, too?
We have been mentioning to you in the past call that our margin for -- sustainable margin levels for this business, the UCP segment, is in the region of around 11%. And I think we will continue with that sustainable level of margins.
The next question is from the line of Nitin Arora from Axis Mutual Fund.
Just a small clarification, for the MEP margin band, you're seeing 7% to 7.5% for next year. Is that correct?
No. That's the sustainable band that we are saying. One could reach it over a period of 1 or 2 years. This year, it's 7.7%, so that is the level of sustainable margin that we are looking at.
And sir, sorry, I'm just continuing what Venu asked about pricing. The view which April has been strong and May has been strong is corroborated by every other competitor as well in the system. Though still the price hikes are not happening. So is there something, the base is low, that's why we are looking at a growth or there is a primary growth of more than 15% in this April-May? How should we quantify that, if you can help with that? That's one -- that's the only question I have.
Is your question on -- is there a price hike or why is there not a price hike given that the demand is also there in April and May? Is that...
Sir, so the question is that if demand is so strong, why still a 40 days season has gone, still not a price hike has been taken? If competition is too high, that can also remain high in the next 30, 40 days as well. I just wanted to understand that.
I think you have partially answered the question, and I think I have also...
[indiscernible]
There is a significant competitive intensity in the industry. Everybody has faced in the year '18, '19, our industry has -- had the effects of the relatively poor summer. And everyone in the industry is sort of, as you know, working around now that the demand -- the second factor, as I mentioned, is that there is a lot of competitive intensity in the industry. It's very high both from established companies who are entrants as newcomers. Among the newer entrants are established companies with significant presence in the trade or significant technology. Everyone has the newest suite, and they're playing out of it. And it is really the competitive intensity that will also determine the nature and the extent of price hike along with the demand and related parameters.
I guess my last question is on the Voltas Beko JV. Is it possible now to quantify and give some directional approach that how the losses will look like? Because the first -- the Q3 and Q4, a good amount of losses being taken there. And how's the sales overall? Because the refrigerator market would have also -- the season will have started. If you can quantify a little bit on that for the next year, that would really be helpful.
If you look at the Voltas JV, and we have talked about this in some of our past interactions as well, the JV is targeting consumer durable appliances space, and it has to establish and make its mark in this industry with a combination of big product offerings as well as the right distribution network, pricing and everything else. The first year or until the time that the factory is up and running, the products for this JV will be sourced from different sources in Thailand, China, et cetera. There has been also been impacts of rupees, et cetera, that you are well aware. So given the investments that this company will make in the plant in terms of the brand props, we are on the view that this company will continue to be in an investment phase, at least for 3 years. And this would be required in a sense like for any new entrant, which is entering the product category, which has a lot of attractiveness, where we have a lot of strengths, but where there are also established players in the industry. Any discussion of Voltas Beko, I think, we need to keep this into mind.
[Operator Instructions] The next question is from the line of Venkatesh Balasubramaniam from Citibank.
Yes. Sir, my first question is you alluded to new competitors in the market. Can you please name who are these new competitors you are talking about?
I think you have all -- you have seen all of the advertisements. I think it would not be right on my part to name competitors. But I think you must have seen various advertisement both in the online and in the print media of many of the new companies which have launched air conditioning products. There is also another feature, if you have followed this industry closely, which you will observe, and that is that there would be companies which are relatively less active in certain parts of the year, which suddenly increased their level of competitive activity during the peak season. So I think that is also a factor, which is in this industry. So there are a number of competitors. I think if you just look around you, you'll probably see that various new companies, which have strengths in 1 or the other areas have entered this industry.
Okay. Sir, the second question which I had was, see, what we've been observing over the last 2 to 3 years is progressively, what has been our sustainable margins in the UCP business, the communication has been already in the sense that if you go back in time, say, 2 years back, you used to communicate sustainable margins as 12%. 12% has become 11% to 12%, and now it has become 11%. So is there like a perceptible downward movement in the sustainable long-term margins of the UCP business, especially given the context that currently what you are reporting, those numbers are slightly deflated if you compare to the previous numbers? Before -- earlier, the sales increase used to include the excise duty also. So anyway, it has moved down. But are you seeing a further movement down in the sustainable margins because of increasing competition?
No. I think for the last several -- at least for the last 2 quarters, we have been mentioning about a sustainable margin in the region of about 11%. And it is quite obvious that you cannot have a number, which is carved in stone as far as your margin is concerned. That number will keep changing depending on -- more particularly, I think everybody's asking us questions about competition. More importantly, on competitive intensity, on how, internationally, maybe some competitors might play and various other factors of this time. So obviously, we have been mentioning that our margins would be in the region of about 11%, and I think that is what we will continue to do this. And you will also see this from -- with comparison with many other companies that not many companies have this level of margin in the air conditioning industry. So that is also a factor, and that is really, I would say, the strength of whatever brand and various other factors that we speak about, it's the combined effect of all of that, that is contributing to the levels of margin that we are today talking about.
The next question is from the line of Charanjit Singh from DSP Mutual Fund.
Sir, if you say like the price hikes in the UCP segment are definitely not been possible because of the competitive intensity. So all the players are talking about cost rationalization and various initiatives. So what is Voltas doing on the cost rationalization? How has been the raw material pricing maybe, compressors and all, now with customs duty also being implemented? Sir, if you can give that color.
We have, I guess, broadly talked about the various initiatives which we are taking on cost rationalization or cost reduction. And some of these tend to be little medium term in nature. Some of these, of course, are -- there could be short fixes in terms of certain value engineering ideas, but that is something that is ongoing and that's part of every business. And I think that keeps on happening. And that helps to maybe mitigate a certain amount of cost increase which might happen. The more broader themes, and we talked about this, is really around the opportunities for maybe investments that we are doing in our old models, which will enable us to source and build many of our indoor units in India as compared to the fact that they are currently imported. So we would, over a period of time, find that a certain percentage of our indoor units would be sourced from India. Again, advantage that this would have is, as I have mentioned, is in terms of the not just the direct raw material cost or the direct material cost, but also more importantly, flexibility and relatively shorter planning cycles. Because you must have seen how the -- quickly the industry and the external environment sometimes turns. And then we did start with a good period in the early part of the summer last year, and then suddenly, we had weather, which in a way, turned against us. So these are some of the reasons why we pursue indigenization. We have also announced plans for setting up an additional factory at a location in South India near Tirupati. This factory is really, will cater to our southern and western markets, so that relatively, it would be quicker for us to send products from this factory to our dealers and to our large chains in the South and the West as compared to the current practice where these products need to be sent out and dispatched from a location in the north where we have the RIEL factory. So these are some of the, in a sense, medium-term initiatives really to work on indigenization. In addition to that, some of the companies which we currently import from, primarily the -- some of the compressor manufacturers and some of the other controller companies, these companies would -- as you know, they have announced plans separately. And you must have also seen these plans, announced plans for setting up a factory in India. Now obviously, we have talked about the economics of compressor manufacturers. But with these companies setting up shop in India, there are opportunities for sourcing their products from India as well, which will again have advantages in terms of supply chain and flexibility. So these are some -- a number of initiatives that one is doing. There are, of course, several other initiatives in terms of looking at our overall optimization of the logistics, et cetera. And these are continuing and ongoing as we progress through the years.
Another question on the...
[Operator Instructions] The next question is from the line of Keyur Pandya from ICICI Prudential.
Sir, my question is that is the bill rating you due this December? And what is the impact that you expect from the rating change to fixed speed basis, is there impact from that?
So I -- to the best of my knowledge, the rating change is still under discussion. What was contemplated is not in this December. So I presume, when you say this December, you are meaning December 2019.
Yes.
It is -- to my understanding, it is not contemplated in December '19, and the entire discussion of re-rating is under the discussion with the government. The reason for that is you can look up the websites and you will find that our energy ratings scales are fairly significant and stringent compared to many of the global standards. And that is also a factor that one will have to bear in mind for subsequent hiking of the rating changes.
Okay. And on part of fixed related there?
So your question was linked to whether the experience is...
Sir, stricter norms measuring the fixed-rate market, is that the right understanding? Or what is your view on that?
Strict -- well, if you look at even within -- it's more than fixed speed in inverter. I think there are also different categories of -- or different rating categories of air conditioners. So if you look at what happened when the last rating change was introduced last year, what was specified earlier as a 3-star energy efficiency AC, what we labeled as a 1-star AC. So obviously, what was the earlier 1-star AC would no longer be -- have the energy -- have an energy rating, and that will even drop off. So at the end, so one doesn't know exactly whether how stringent or what is the exact specs of the new energy rating. Once these are out, obviously, some of what is today are 3-star may become a 2-star depending on the energy labeling norms, which might come at the announcement of the government. And you have to also look at it from a consumer standpoint. That one of the standpoint is, of course, the greater energy saving and energy efficiency. Yes, there is that as the product become more energy-efficient, obviously, there is some cost increase which gets embedded into the product anyway. So obviously, that is also a factor. On one hand, if there are -- there is objective to grow the industry and the industry needs to -- has to grow given the nature of the weather in India, then one needs products that are, in a sense, entry-level products or attractively priced products. And I think these products can come only when -- and so it's a little bit of 2 sides of a coin really between the energy efficiency increasing and the cost of the product also. So that's really the -- it's not really a fixed speed versus inverter, it's more within the fixed speed category, what type of product will sell and can meet the energy efficiency norms.
The next question is from the line of Niket Shah from Motilal Oswal Asset Management Company.
Sir, just a couple of questions. First, I wanted to understand, are you feeling -- I mean are you seeing significant amount of shortage of people on the installation side of the AC becoming a significant issue, assuming this year is going to be a very strong year for AC as such?
I mean is there any indication that you have picked up informally that there is such a issue?
No. At least while we speak on the channel, on the ground, people are facing a bit of that issue. But I don't know if Voltas is.
I would say that partly, this has been -- I mean given the seasonal nature of the industry, I think this is a factor which is really due to the seasonal nature of the industry. If our sales peak and we have seen and you must have -- you are well aware of how our primary sales are skewed between quarters, there will be -- obviously, the entire system or the entire ecosystem, which support the sales, you need so many number of -- higher number of people during summer months. And therefore, there could be temporary mismatches of how many people are required, relatively how many people are available. Further, the sale is really the consumer psyche. During -- people, when they go out and buy an air conditioner during the summer months, they really want it to be installed on the same day. Whereas that may be the time that there is so much amount of load, so it's, at one level, the classical statistics problem of planning for people versus planning for averages. So I think that also plays out in this manner. So there could be some temporary things. But in many cases, for example, a lot of the work of installation is given out to our service franchises who are certified by us to ensure that the AC installation is done in a proper manner. I just wish to add here that a proper installation of an AC is extremely important in the entire cycle because it not only helps in the subsequent maintenance of the AC, it also ensures the safety, continued good usage and the right amount of energy efficiency from the air conditioner.
[Operator Instructions] The next question is from the line of Sandeep Tulsiyan from JM Financial.
Sir, my first question is pertaining to some more data points if you could provide on the Voltbek JV, some [ monetables ] that we could track. I believe in terms of reach or number of touch points that we have or the targeted number of exclusive outlets that we plan to open over the next 1 year up to 5 years. If you could share some more data points, it would be very helpful.
So obviously, we are, in a way, expanding. And one of the points that -- or one of the ways that we expand is through the branch of growth. So our target is definitely to grow the entire brand shops. I think currently, we have a few hundred. The target is to set up -- we have increased the number of brand shops to almost triple digit right now, and the idea is to continue that momentum of growth. So obviously, it is difficult to give that number, but aspirations would be that if that number would grow to anywhere in the range of 5 -- 400 or 500 over a period of time. So -- but the brand shop in a way only complements, I think, one of the -- and it's only one of the distribution channels for the product. The other is the conventional distribution channel as well as the modern retail channel, and both of which are being tracked and targeted by Voltbek. And as we have said in earlier calls also, leveraging from Voltas' strength of having over 15,000 touch points in all air conditioners. And we are today present across all major distributors in the country. And obviously, there are certain distributors who are not dealing in air conditioners but who deal more prominently in refrigerators and/or washing machines, these are also being targeted. There are also, if you just delve a little deeper, there are product categories like dishwashers. And dishwashers, particularly, which are in a way need a bit of selling in terms concept selling, and that is where a brand shop comes in handy. Because the attempt in the dishwasher category, I think, for everyone who's in this industry, would be to totally grow the industry size. And that can be there if there is not more of demonstration, et cetera. So there are a number of ways that we are helping to grow the entire distribution network. And it is also important to understand that along with growing the sales distribution channel, it is equally important to grow the service and distribution channel as well. So not only are the products available where we want it to, but also, they are serviced well if and when they need a service.
The next question is from the line of Renjith Sivaram from ICICI Securities.
If you can just help us, you had mentioned in your release that there is some one-off in one of this warehouse-related thing? So is that -- if you can help us quantify that so that we'll get to the normalized margins in UCP.
Actually, it is not one one-off. I mean let me -- I think that we've -- what we have return is there were a few one-offs, and we gave some examples of that which included short settlement of insurance claims. Some settlement of claims due to fire, and there were some one-offs due to certain norms, et cetera, energy efficiency norms, so we had to have for various related things. We have also -- had to provide for some of that. I think collectively, it would add up to a level somewhere between INR 13 crores to INR 15 crores.
The next question is from the line of Vishal Biraia from Aviva Insurance. We move to the next question which is from the line of Harshit Kapadia from Elara Capital.
I just wanted to know what was the volume decline of Voltas if you can share in this quarter. And primary reason why the margin in the projects business is 0.5%?
We can say to you that in a way, we don't give out volume numbers, that you can draw your estimates based on the turnover and the growth of the turnover and the market share that -- numbers that we put out. On your question relating to the projects, we have -- I can mention that the margins in the project business do tend to be lumpy given -- and therefore, the margin for a quarter should not be taken as a fairly reliable indicator because of this lumpiness. And this lumpiness could be both ways. And if you look through the year, you will find that we have had a margin which was better in some quarters and not so good in the others. So a better indicator would be more of the annual margin and the sustainable trend over a 3-year time frame. I think that would be a better indicator to judge the project business.
Can we expect a sustainable margin of around 7% to 8% for FY '20 in the projects business?
I don't think we have talked about a margin for a particular year. We have -- I think we have never given you any guidance for that year, talked about a sustainable margin for the project business over a period of time, which may be over a period of around 2, 2 years or so, and said that, that would be in the region of 7% to 7.5%.
The next question is from the line of Shrinidhi Karlekar from HSBC.
I have a very basic question, sir. I just wanted to know, according to you, how much is the -- really the size of the AC industry in India? And how much is -- is it like 5, 6 or 7? And there are various number in the media. And the second one is how much of that, too, maybe is really institutional, like a nonconsumer sale? And how much is that for you?
I think given your -- given the way you have asked the question and given your confusion, I think that itself is fair, and any answer I give you will be challenged. No, I think that's because you have either way pointed out the difficulties in calculating the industry. So I don't -- let me spend a minute on that because that's a bit important in terms of understanding the whole economics. Whenever we report market share, we rely on the industry-wide standard indicator of secondary market share. That market share is based on a coverage of around 80% of the industry outlets, roughly. It leaves out what you have touched upon, it leaves out some of the institutional sales. Based on that, and if you add back the institution, the general estimate of the AC industry is in the region of somewhere around 5.5 million or a little upwards of that. I think...
And so how much would you go for institutional for that? Like, is it like 15%? And how much would be for Voltas?
Sorry? I...
Sir, I wonder -- I want to understand out of this 5.5 million, how much would be like pure consumers, like maybe we -- people like us and how much would be like more of an institution, like public buildings and hotels and hospitals where like unit ACs are going?
There are different types. The short answer is that it's difficult to answer this question. And the reason for that is that there may be one-off offices, which will buy an air conditioner from a dealer. So that will get counted as a sale from a dealer to one...
Consumer.
The first point. Secondly, I think the type of machines that you mentioned, really commercial air conditioning, that is in a way not part of the Unitary Cooling business. That's typically part of the project business because these machines in all not -- in many cases, not just the product sale but also involves along with that a lot of our light project-related work. And very often, these are also combined with a lot of other entity projects work that we do. And so commercial air conditioning typically tends to be counted in the project-related space. And to give an answer, for example, a particular small-time commit to air conditioners, they're buying 4 or 5 ACs from a dealer. And in a similar vein, during -- another part of the year, may place an order for a large number of ACs to be installed across a few hundred branches. So it really becomes difficult to classify it in a manner that is very precise.
And just as a related one, sir...
[Operator Instructions] The next question is from the line of Jay Kakkad from Ambit Capital.
I just wanted to understand the use of cash currently in your balance sheet, so you maintain your dividend this year and you're not -- so I was expecting some increase. But is there any thought currently on the use of the cash on your balance sheet?
We have spoken to you about our plans for investment, which will require some amount of the cash that we currently hold. We have talked of investment in a new factory over a period of time at near Tirupati. So that will also take some of our -- this cash. We also talked of continuing investments in -- in the Voltbek joint venture, so that should also be one of the use of our cash. Then there will be ongoing capital expenditure that we'll incur over a period of time. I think all of these should take up some amount of the cash. We also ensure that we keep a certain amount of cash to float given the project business and the nature of the AC working capital cycle of that business. So collectively, I think you will see that this cash is utilized in the right manner to help us there in our efficiencies.
The next question is from the line of Amber Singhania from Asian Markets Securities.
Just one question, a bit of reconciliation. You mentioned on the press release that industry has de-grown by around 3% and you have de-grown at around 2.2% within the model effect along with the industry. Whereas on the market share side, we have shown that we have grown market share by 180 basis points. I understand that is YTD sales actually, but does that mean then on a full year basis, our market share will be more or less similar to last year? If you can just help me understand that.
No. I don't know how you arrived at this conclusion. Because the reason we have given market share up to February is that the data for March is not available.
But sir, on the full year basis, if the industry has de-grown by 3%, we have de-grown by 2.2%. Then market share gain would not be significantly higher, right, and 20 basis points...
I just want to correct the perception. I don't know where you got that 2.2% figure from.
On your press release.
No, that is the sales results.
But this market share, you mean to say it is on the volume base or is it on the value base?
Market share is based on secondary sales, and the number that we report is on the primary sale. I think that is where there will be a bit of a -- the gap and the difference. Because all of the primary sale will be -- there will be an inventory at the dealers, and there will be an inventory at the distributors, and at the end, retail shop. All of that will happen before the secondary sale happens. So the market share indicator that we use and the whole of industry uses is actually based on the secondary sale.
Sir, just correct me if I'm wrong, if the secondary sales is suggesting such a huge jump on market share, it would -- it has to reflect a number on the primary sale, maybe 1 quarter before. So on a full year number, it should not be [indiscernible]
No. No. I think -- I mean that's why I talked a bit about this, that there is an interim inventory pipeline between our primary sale to -- and consumer sale, right? There will be inventory in the pipeline. And depending on the inventory, I mean, if you are working on a -- almost on a just-in-time model, then I think what you said is probably correct. But the interim inventories, which are probably not available in one location, I think that is what would determine. So there could be instances of a higher secondary sale and a lower primary sale and vice versa.
The next question is from the line of Nishit Jalan from Kotak.
Sorry if I repeat the question because I missed the initial part. I just wanted to confirm that our primary sale, which has declined in this quarter, has it got anything to do with some shift in sales towards April because we had a delayed onset of summer in North India?
Yes. I think we have mentioned that in our note as well, that it does have -- that we are seeing a delayed onset of summer. And of course, the phenomenon of the channel inventory. I think the combined effect of all this gets us some -- our sales would have shifted to the next quarter.
Okay. And so my second or last question is basically, on generally, the new energy efficiency norms. Have you looked at where India as a market is compared to other global markets, like say maybe, U.S., Europe or China as to how stringent can our energy efficiency norms become in the next 5 to 7 years?
From what has been told, we understand that our energy efficiency norms are comparable or even higher in -- as compared to some of the other markets. And therefore -- and they are moving at a good pace. I mean, if you just look at it over a period of time and you can get that data for yourself in the last 7 years, there have been frequent changes to energy efficiency norms. I think to my understanding, there are at least been 3 changes to the energy efficiency norm over a period. Our energy efficiency norms have really improved and they are very much comparable to -- with the same class.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Abhineet Anand for closing comments.
Yes. I would like to thank the management of Voltas for giving us this opportunity. And I would also like to thank all the participants for logging in. Thank you.
Thank you. On behalf of SBICAP Securities Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.