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Ladies and gentlemen, good day, and welcome to the Voltas Limited Q4 FY '20 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Renjith Sivaram from ICICI Securities. Thank you, and over to you, sir.
Thanks, Rio. I welcome you for the fourth Q FY '20 Earnings Call of Voltas. We have the management represented by Mr. Anil George, Deputy Managing Director and CFO; Mr. Manish Desai, Head Corporate Finance; and Mr. Vaibhav Vora, Manager Corporate Finance. So we will have initial opening remarks by the management followed by question and answers. Manish, you can start with the opening remarks.
Yes. So Good afternoon -- yes, good afternoon to all of you. I request Mr. George sir to start with his thing.
Yes. Good afternoon, everyone, and I bow to thank you all for joining us this afternoon. May I first before getting into the Q&A present an analysis of results, covering our comments on both the quarter and the year ended 31st March, 2020. At our Q3 conference call, you will recall that we spoke about the year 2020, beginning with escalated global tensions, combined with the rapid spread of the coronavirus, threatening to disrupt trade and seriously impact economic growth across nations. It must be said, however, that the gravity and sheer extent of the COVID pandemic could not be foreseen. The world has since cumulatively reported over 6.1 million cases of infection and as many as 370,000 deaths. In essence, it has brought the world to a complete standstill, sparing neither the most developed economies, nor the poorest of the poor nations. In fact, as much as 28% of the deaths have been reported from the U.S., closely followed by the European geography taken as a whole. Thanks to early lockdown decisions, COVID numbers reported in India as the proportion of our large population of 1.35 billion has been relatively contained at around 190,000 positive cases with some 5,400 unfortunate deaths. The economic impact of the crisis has nevertheless been even more severe. In fact, we hear predictions of de-growth exceeding 5% in FY '21, notwithstanding the several well intentioned government announcements and RBI interventions. Meanwhile, PMI indicators have plummeted in April, and Industrial output has sharply contracted. The government now faces a real and present danger of revenue shortfall, which may progressively constrain its ability to meaningfully intervene and kick start the economy. At the same time, India has to deal with the massive exodus of migrant workers fleeing job losses, starvation and the absence of livelihood in lockdown cities. Dismal as it may sound, opinions indicate that India could perhaps see more deaths due to hunger than from pandemic, if it continues to remain in lockdown. The country must accept the virus as the new normal and increasingly adopt a balanced approach that facilitates the return-to-work of the able-bodied, while protecting the most vulnerable. Although the lockdown has now been extended in vulnerable containment zones, with restrictions being selectively eased in other less exposed parts of the country, the danger of spikes requires careful management. Coming to Voltas, a sales increase of around 50% in our Unitary Product business for the first 11 months of the year seem to indicate that we will handsomely finish FY '20, surpassing our own expectations. The month of March was sadly, a different story. COVID-19 became the spoil sport and the entire industry has for all practical purposes, lost about a month of sales, made all the more disappointing in the context of peak seasonality. Our Domestic Project and other businesses were also simultaneously constrained by the lockdown, with follow through consequences on the base of work, labor availability, deferment of certification, et cetera, not to mention an intentionally high propensity to delay due payments. Set against this environment, the consolidated total income for the quarter ended 31st March, 2020, was higher at INR 2,150 crores as compared to INR 2,120 crores in the corresponding quarter last year. Net profit before tax was higher by 30% at INR 217 crores as compared to INR 166 crores in the previous year. Profit after tax stood at INR 160 crores. The consolidated total income for the year 2020 improved by 8% to INR 7,889 crores as compared to INR 7,310 crores earlier. Profit before exceptional items and tax was up by 15%, at INR 796 crores compared to INR 689 crores in the previous year. PBT was at INR 744 crores and earnings per share, face value per share being INR 1, as of 31st March, 2020 was INR 15.63. We would also like to mention that the strength of our balance sheet as of 31st March, 2020, with the strong reserves and adequate cash is a definite source of comfort in these troubled and liquidity stressed times. Analysis by segment, now there's a small table that we sent to you, which shows the revenue by each of the segment, the segment results and capital employed. I will quickly just run through FY '19 and FY '20 figures of revenue for each segment. Segment A: Unitary Cooling. FY '19, INR 3,156 crores, moved to INR 4,074 crores in FY '20. Similarly, Segment B: Engineering Projects, from INR 3,619 crores in FY '19 to INR 3,246 crores in FY '20. Segment C: Engineering Products from INR 312 crores in FY '19 to INR 332 crores in FY '20. Coming to segment results, Unitary Cooling moved from INR 325 crores in FY '19 to INR 512 crores in FY '20. Engineering Projects from INR 277 crores to INR 170 crores, and Engineering Products from INR 105 crores to INR 99 crores, respectively. I will now get into bit of explanation on the results and the business performance of each segment. Segment A. The first 2 months of the quarter witnessed high demand on the backdrop of a severe summer prediction, combined as it was with trade anxiety on forward product availability, given the perception of possible supply chain disruptions ex China. As mentioned earlier, our own YTD volume growth was 50%, well ahead of industry benchmarks. Unfortunately, the lockdown commenced before sales in March could accelerate, adversely affecting primary dispatches and resulting in a substantial loss of revenue during the month. Nonetheless, the division delivered an impressive full year revenue growth of 28% at INR 4,049 crores. This was accompanied by a smart expansion in profitability. Segment margin improved by some 230 basis points, extracting benefits from input cost efficiencies and improved mix, helping to register an impressive bottom line of INR 512 crores. Apart from the improved quality of the business, Voltas has sustained its market leadership and increases its YTD share (last available report incidentally being that of February 2020) by 50 basis points to 24.2% over the previous year. We are also happy to report that Voltas has achieved a leadership position in the fast-growing Inverter Air Conditioner segment, overtaking its nearest competitor in the months of January and February. Inverters now account for as much as 64% of the split ACs sold and over 50% of all ACs sold. Sharper focus on customer-centric innovation, expansion of distribution channels and a balanced supply chain are yielding desired outcomes. We have also seen better traction in the Air Cooler segment with a growth of about 60%, given a variety of measures, including availability of the complete range, wider distribution network and competitive pricing. The brand has now placed a #2 with market share of close to 10% at exit February 2020. At the same time, aided by expansion of retailers and change in lifestyle, the Commercial Refrigeration category has also grown reasonably well in the current year. Allow me to now move on to segment B, Electro-Mechanical Projects and Services. Segment revenue for this quarter was lower at INR 805 crores as compared to INR 976 crores INR the corresponding quarter last year, primarily due to the slow pace of execution and related project challenges given the onset of COVID. Lower revenue is reflected in the segment result of INR 11 crores, together with certain conservative time based provisions made owing to collection delays amidst general liquidity concerns. The segment revenue of INR 3,246 crores for the full year compared to INR 3,619 crores in the previous year, is also a direct consequence of the low opening order book in April '19 of under INR 5,000 crores, together with very limited book and build orders. That said, new orders have been carefully booked during the just completed year, and we now have a carryforward of INR 7,788 crores as of 1st April, 2020, which should support reasonable revenue in FY '21. In so far as our International business is concerned, COVID-19 has not per se affected projects since construction activity is statutorily considered as an essential service in the Middle East. Nevertheless, the pace of execution has significantly reduced and certain mega events like the Expo 2020 have been postponed. The sharp decline in oil prices caused by the drop in demand, combined with a glut in supply amidst development of viable alternative sources of energy, threatens to impact fortunes in the Middle East. Accordingly, additional care and diligence is being exercised in the procurement of new orders. The total order book for the International operations business as on 31st March is just short of INR 3,000 crores. On the Domestic front, the initial period of lockdown has affected the business, resulting into delayed job closures, work certification and receipt of receivables. While work across many of our sites has since been allowed and has commenced, the remobilization of the workforce remains a challenge. While the situation is being closely monitored on a project to project basis, some amount of delay in project execution and collection appears inevitable. However, given the subdued demand, material prices have come down and savings are expected to accrue on future project sourcing. Notwithstanding, all reasonable precautions to legally and contractually protect our entitlements have been taken and should help mitigate forward risks. Whereas private investment sentiments are understandably subdued, limited resources in the hands of the central and state government is also likely to affect spend on infrastructure projects in the near future. We have, however, witnessed good traction in securing orders of INR 1,116 crores during the just completed quarter, and the carryforward order book of INR 4,789 crores in domestic, represents a healthy mix of water, metro, airport, solar and general MEP projects. That said, forward project management is key, and we'll continue our emphasis on timely execution, prompt certification and receipt of physical cash. Segment revenue and results for the quarter were at INR 95 crores and INR 27 crores, largely similar to the previous year's performance. On to Segment C, Engineering Products and Services. Excess capacity, weak export outlook and lack of financial facilities continues to challenge fresh investments in the Textile sector. Meanwhile, our strategic focus on after sale service has helped offset the impact of muted textile machinery sales. In Mining & Construction Equipment, the quality of engagement with our Mozambique customer has resulted in additional maintenance contracts. While the mining activity has thus far remained safe from COVID interruptions, reduced demand for coal across the major consuming countries may over time, result into production cuts. Meanwhile, mining activity in India continues to remain largely sedate. The announcement of commercial mining may revise some of the closed mines, but we need to wait and see its execution to better assess opportunities. Voltas Beko. Cumulatively, the company has invested an amount of INR 335 crores as of 31st March to further our strategic presence in the wider Consumer Durable market together with our joint venture partner Arcelik. Manufacturer of Direct Cool Refrigerators from the Sanand factory has commenced in the current quarter. With this, the Refrigerator product range is complete, including as many as 36 SKUs in the larger selling 185 to 240 liter range. The factory has an annual capacity of 1 million units, which can be scaled up to 2.5 million units for manufacture of refrigerator and washing machines. Product review and acceptability both at the Customer and Consumer end has been encouraging. As per external sources, we have also attained a reasonable market share of close to 2% in both Frost Free refrigerators and washing machines within a short period of time. The current lockdown has meanwhile increased demand for some of the appliances like Dishwashers and Refrigerators. All in all, the underpenetrated market, product quality, trust of the Tata brand and extended distribution, leveraging the considerable strength of Voltas, all goes well for our future ambitions. A brief sum-up. Given the uncertainties around lifting of the lockdown and the revival of economic activities thereafter, we remain cautiously optimistic. On the positive side, COVID has helped discover various cost-effective ways of doing business, and we'll continue to explore opportunities to optimize discretionary expenses. Simultaneously and as the situation continuously evolves, Voltas will closely monitor and tap potential opportunities for profitable and longer-term sustainable business growth. That said, the nature of the pandemic being what it is, we can only hope that the worst is behind us. Thank you. We'll now be happy to take questions.
[Operator Instructions] We take the first question from the line of Sheena Barbosa from TRP.
I just had one -- few questions for the Unitary Cooling segment and Engineering then. For the Unitary Cooling segment, if you can give us an idea of how is the inventory in the system now? And how are you all managing with the -- how are the dealers, distributors, what is the pace of opening up, are they able to go in and install AC, or maybe just a sense of how you see that ramping up? And the second thing on the ACs was also -- because the air cargo and all is still pretty much -- the borders are closed and all that. So in terms of lead times for ordering new inventory for you, has that gone up a lot? If you can give us a sense, and once you get through this set of inventory, how are you thinking about placing future orders?
Yes. Okay. Your first question is about Unitary Cooling inventory in the system. We -- as you're aware, when I spoke about the 50% plus growth that we had in the first 11 months, it really means that there is a substantial amount of inventory that has moved from our manufacturing sites and depots into the warehouses of the dealers and the distributors. Now that inventory has not -- with the lockdown happening, that inventory has not really depleted. And as far as the country itself goes, various zones have been allocated. And they've gone with red, orange and green zones. As you would know, Voltas has a substantial presence also in 2-tier and 3-tier cities, which do not necessarily mimic the red zone that you have in a place like Bombay. So as a result, sales have started whenever they were permitted. But on an overall basis, there's about 60 days of inventory with the dealers and distributors. Many parts and the parts where we have been able to sell more are really in the north, in the east and also in some parts of the south. The good news for our business is that, the weather has been intense, and the stock has started to move. But unfortunately, the -- it is not an all India kind of a situation, it is more into pockets. So we really need to see how the COVID actually develop. But fair to say, that we have lost the April, it was a complete -- no, no. We were not able to sell anything because there was no secondary sales and/or primary dispatches do not really come into question. But in May, we have started to see sales picking up, and we are hopeful that as the months progress, we will get better net attraction. The -- your second question was in terms of how do we deal with air cargo, with border closed, give us a sense of -- how much of the new inventory? Thankfully, we have sufficient inventories with us. And I think we will not run into an inventory problem per se in our planning for the second summer. There is enough time. And also, we are picking up the -- creating the ability to be able to be self relied as much as possible, not have to import everything from China, and are moving in that direction. So while the lead time definitely is there right now, we do not need at this point of time to actually import an effect.
Got it. But how have you been importing whatever has been -- what is the lead time been like, if currently, if you had to put an order to pay?
It depends on whether the product is really available off-the-shelf in China because they also had some problems and they are trying to cope up. So it's a very subjective question. But we are not looking at air freighting etc. Air freighting increases the cost tremendously, and if we do that kind of a thing, I'm afraid that we will not be able to show you the kind of result severity of 12.6% that we got in Unitary Cooling. So everything, most of our inventory comes through by ships. So it's generally something like 30, 40 days of assuming that inventory is readily available for dispatch from wherever it is. But then again, you have to look at the impact at border restrictions, all of those. But it's not a problem for us because we have sufficient inventory to take care of the second summer. We will, of course, beat the plan for the next big season coming in, in the early part of the next calendar year.
Got it. Got it. And sorry, just if I may, on the labor availability, the domestic projects front, you've mentioned some challenges around remobilization of workforce and collection, payment issues. If you can give us some sense of how you see that restarting and the labor situation today, that would be great.
Very quickly, we have 4 factories, where we have started our production. But it's not really been ramped up to the maximum capacity. Because, one, because we also don't want to be just manufacturing inventory, which both does not get liquidated, one. Number two is that we are also -- if -- where skilled labor is not available, we cannot manage with local labor, which is of an unskilled variety. So we have to touch and feel and feel the situation through. Generally, what has happened with the Projects business is that, most of our projects are done in sites that are accessible. And we have been able to start work there, but there is a problem in terms of getting adequate labor. So things are going a little slow, but we're hopeful that once the wheels of the economy start moving, there will be actually a little more traction in the speed of projects. Given the situation, everyone is conserving cash. And therefore, even -- and that's why I said in my opening comments, I said that there is a certain amount of intentional holding back of due payments. So that's something that we'll have to live through. But I think as far as your company is concerned, Voltas is concerned, we are in a happier stage, so we don't have the crisis of liquidity hanging on our shoulders. But nevertheless, we are very clear in our minds that in certain businesses like Projects, profitability comes only when you collect cash, and therefore, we're going hammer and tongs over our own entitlements.
The next question is from the line of Charanjit Singh from DSP.
So first of all, congratulations on a very good set of numbers. Sir, if you can help us understand what is the kind of secondary sales growth in Q4, like end market from the dealer level to the customer? And if at all, we have seen such a strong primary push and 2 -- almost 60 days of inventory in the system, so Q1 will remain a very big challenge for us to do primary sales. So how do you see this entire Q1 quarter evolving? We have already seen 1.5 months of lockdown? That's the first question from my side.
Okay. As far as the secondary sales in Q4, our own -- from external reports, we know that the market growth in the period, April to February for the AC, Air Conditioner segment was roughly about 30%, up to February. And the full year, including March is estimated at something like about 24%, 25%. This is an internal estimate. And our growth numbers, of course, you do know. Yes, secondary sales have been curtailed in the -- in Q4. But as I said, the market is opening up. Wherever the markets have opened up, we are actually getting quite a bit of demand for additional stocks. Yes. But you will not see this in places like Mumbai, where, for example, everything is completely in a red zone. But in parts that I mentioned about in North India, which is now heading for a heat wave, with almost about 46, 47 Celsius degree, I think there is quite a lot of impact in terms of the buying pressure. So it should actually liquidate. So what I'd say is that, we cannot bring back and neither can any player in this industry bring back the sales losses in April. But our determination is to make the best use of whatever time is available between now and before the rains really hit across India as much as possible. And it is a rather difficult since the situation is evolving on a day-to-day basis, new cases are being discovered. New zones are being opened. It is not possible at this point of time to give you an estimate of how the secondary sales for the first quarter, Q1 will be. But one thing I can assure you is that, given -- within the competition, I think you know the company well enough to know that we will perform to the best of our capabilities.
Great, sir. Sir, just second question from my side. In terms of the offers which we are seeing in the market, even pricing perspective from Voltas and from the other competitors, it looks like everybody is trying to push out the inventory, clear the inventory quickly with these kind of offers. So on the pricing front, in Q1 now, how do you see the market panning out? What are the kind of discounts you are seeing already in the market? Now we being a large player in the Inverter, AC market, so that's very critical for us going forward. Yes. That's all from my side.
Yes. Okay. That's a very good question. In fact, because lots of inventory has been bought by everyone, because everyone was anticipating a very, very hot summer and because of the China supply chain issues, people -- even the distributors and dealers are saying, let's stock up, let's stock up as much as possible. So as a consequence now, when we rather hit the road with very critical month out of action, people are trying to -- many of the brands, and understandably so, are trying to give large discounts and entice the customer in terms of buying their brands. As far as Voltas is concerned, we are not going out of our way to do huge discounts or anything like that. If there is a particular attack on us in a particular market where we find a very close competitor or, let me say, a substantial competitor who we think is competing with us in terms of product quality, pricing, et cetera, we would do on the spot some kind of discounting to contain the market share erosion there. But across the board, we do not want to be taking price decreases. Because once you start taking price decreases and as a leader, if I take the price decrease, everyone will follow. So we have to -- because we see our responsibility on not only growing the market and retaining our market share, but also doing it profitably and in a sustainable manner. And therefore, we do not necessarily go into large-scale discounting wars with anyone. The second thing that I would like to say is that, we have certain things in our brand or like as, for example, we would have some tie-ups with the credit card companies or with -- well for 0% EMI maybe and also we had our products are backed by a 5-year comprehensive warranty and a 10-year warranty on the compressors. So these -- and the quality is pretty good. And we have an after sales that backs us up extremely well. And with all these things, we have a different proposition to the consumer. And we believe that small price decrease here or there is not really going to affect our fortune so much.
[Operator Instructions] The next question is from the line of Atul Tiwari from Citigroup.
Sir, my question is on the E&P business. So we won quite a bit of orders on the domestic front in FY '20. And now obviously, government is short of money, et cetera. So how is the outlook for execution? Do you anticipate some kind of order cancellations, et cetera, in that business? And the second one is kind of a data keeping question. So what was the international order inflows in fourth quarter?
International -- sorry, what was that? International...
International order inflow in fourth quarter. You gave the domestic number, just on the International.
It's roughly about INR 400 crores is what we have taken. Manish, you can correct me if my memory is wrong. INR 400 cores in the fourth quarter International. Yes?
Yes, sir. Yes, sir.
As far as the E&P domestic orders are concerned, I think I have laid down in my approach note as transparently as possible some of the challenges that this industry faces -- now none of us can really look ahead and see and say very definitively what will happen and what will not happen. But given the situation, what is the best that we can do, we should be careful about the way that we execute. We do not invest too much of our own money into the project without ensuring that there is a phased receipt of cash. What do I mean? Irrespective, whether it's a government or not, I would be careful about -- I have a certain plan in terms of cash receipts during the course and conduct of the project. I will be careful in ensuring that, that keeps coming. Otherwise, I would also resort to some level of slowing down the work, taking my labor from that project to somewhere else, et cetera, et cetera. This is how projects are really managed. Because if you don't get the cash, we don't want to necessarily leave it, till the end and then get into a situation where we might not immediately see the cash. With the government, one thing that we have always seen and that's part of our strategy, why we have gone with government projects is that, the government is true to its word. There might be issues and delays, but they do pay up at a certain point of time. So that's -- the way that we are really looking at it. In terms of cancellations, et cetera, I mean, contractually, it is bound in such a way that it's not easy to just cancel a project without paying whatever is due to the contractors or after the certifications that are already done, et cetera, et cetera. These are legally bound exchanges that really take place. I mean there can be, for example, in the certain cases, very obvious cases, someone can run bankrupt. I mean these kind of things do happen in the life of project business. But the thing is that, we are spread out fairly well. Our way that we look at risks are also to actually evaluate it. It goes through several filters before we actually take on a project. And we then -- after that, we then do our very thorough monitoring, and we have signal -- red signals coming up every now and then, even to those top management, if a project is not progressing as time passes. So we have to manage it. We are where we are. We can control what we do, but it might not always be possible to control the environment. But given the scope of what we can do, we'll be sure that we'll do our best.
The next question is from the line of Sandeep Tulsiyan from JM Financial.
My question is on the share of online sales. Given the post COVID period, you might suddenly see a bump up as online sales might garner a larger share of the industry sales. So how is Voltas pegged as compared to their competitors in this space? And if you could give us some more details of how exactly the working capital cycle, margins and competition, pricing, et cetera, is evolving over here?
If I talk about the online sales, air conditioners as a product has not really been extremely successful in terms of online sales anywhere in the world. Even if you would look at very developed nations, they have not taken off that way because -- why because, there is an installation that's involved and it's not very often easy for a buyer to just install it. For example, it is not like, let's say, refrigerators or washing machine, which you might argue can just needs a plug to be connected and then -- where you start. So in the case of India, and in our case also, the sales through the e-commerce sites are roughly about 8% to 10%. And how we do it is that, we also have our own dealers or through Cloudtail, we ensure that the installation is done. So that -- because the warranties cannot be applicable. And I mentioned earlier that we have warranties of 10 years on compressor and 5 years on comprehensive. These cannot hold unless the installation is done properly. So we insist on that. And if an e-commerce player installs a machine by himself, then we're sorry, the warranty will not apply. So that becomes a certain amount of a problem. When you think in terms of the other consumer durable products that we are selling like the -- through Voltas Beko, of course, there is a greater propensity for good sales to happen through the share of online sales. Having said that, the way that we operate is that, we have a certain understanding with Amazon through Cloudtail, with Flipkart, Tata CLiQ et cetera. So we are not militating against the online shares or the Internet sales, but we are really finding a way for both of them -- for both them and us to exist peacefully side-by-side and profitably at that. In terms of working capital and margin, et cetera, I mean this a very, very complex question, I don't think I can really give you a full-scale understanding in the short time that there is. But all that I'd like you to see is that, if you can look at our segment view of the capital employed and the return on capital employed, you would see that in Segment A, if you look at Unitary Cooling, you'll see that, I think we had a figure of something like INR 475 crores or INR 476 crores of -- in FY '20 as capital employed for Unitary Cooling as compared to something like about INR 550 crores in the previous year. So actually, there's been a decline in the -- the total capital employed in that particular business and ROCE is very handsome at close to 100% or beyond. In the other businesses, again, the Project businesses tend to be little more [ elongated ]. And in terms of -- generally, if you look at it in terms of inventory days or trade receivables, inventory days would be something like about 90 to 100 and better days would be about 80, 85. This is the way that the business actually operates overall. But in Unitary Cooling particularly, you'll find that the net trade receivables are pretty low. It would be something like about 20, 25 days or 30 days only, given the fact that we don't sell on large credits to our people.
The next question is from Bhoomika Nair from IDFC.
Congratulations on numbers in a difficult environment. Sir, Just wanted to understand in our UCPL segment on our -- while you detail that we have enough inventory and we don't really need to source immediately, but from a more long-term perspective, are we reevaluating our import strategy versus doing more in-house or local sourcing? If you can just throw some light on what our thoughts are. And number two, we've gained a lot of market share over the last couple of years, how are we looking at expanding this? Is there further scope for expansion, given the kind of competitive intensity there is?
Yes. I think the -- I particularly like the first question in terms of the longer-term strategy. I think I did mention that the -- one of the things that COVID has taught us and the country and maybe countries across the world is that there is a need to be self reliant as much as possible. On a very long-term basis, one cannot continue to put all your assets into 1 basket. And in fact, we have not been doing that either because even when we say that we import from China, the fact of the matter is all my window air conditioners are [indiscernible], all my outdoor units for the split air conditioners are made here in India. Of course, there are certain parts like compressors and motors, which for whatever -- what the purpose, there has been a critical mass which will allow them to be sourced from India. So on a longer-term basis, I think we are all very clear that we must become more self-reliant. And this was the context in which we are looking at putting up some own manufacturing, increasing our manufacturing capability, both in south. In the interim, we are currently looking also at stepping up the production output from our 2 factories in Pantnagar, where with the addition of certain balancing equipment, et cetera, we can considerably lift up the production. We are also in talks with many of the new suppliers who have started to set shop in India for compressor manufacturing, et cetera, to find viable business mechanisms to be able to -- and live and profitably and co-exist with them. So many of these things that we are looking in strategy, and it is a very important thing and where we will not lose sight of it. And we do not also want to come to the market and say, I lost my market share because I was not able to import from China. That is not something that we would want to tell you, and I don't think we will ever do that. As far as the market share gain is concerned, yes, I think the fact that 1 out of every 4 air conditioners sold in the country bears the Voltas and/or the Tata name is something that we're very proud of. And as I've mentioned earlier, we will, at all points of time, jealously try to protect this market share. But we will not do it in a way that defeats the purpose of business in a long-term basis. What I mean is that, we will not lead price decreases. We will not do things that are anti the growth of the market in the longer term. Penetration, Bhoomika, as you're very well aware, is very low, still very low at 4%, 5%, 6%, I mean, those are the estimates floating around. But there is a lot of scope to be able to exploit in this market and to grow. And so there is place for everyone. If you look -- if you ask me where would I want to go? Yes, initially, the market share increases are easy pickup when you're at a low percentage. But as the market share goes higher and higher, it becomes more and more difficult to add a percentage point. But if you look at our growth history over the past 4 or 5 years, you will see that we've been consistently hedging up our market share one after one on a percentage and we will continue to do that. If you look at our long-term plan, we do have ambitions of increasing our market share. I don't want to commit that number right now. But let me tell you that, it is not at 24.2%. It is much beyond that. Yes. So with that, let me just leave that answer.
[Operator Instructions] The next question is from Amish Shah from Bank of America.
Mr. George, you spoke about doing cost-effective ways of business. Could you give us some more perspective on where could the cost be saved, including on the working capital side?
Okay. I spoke about -- are you referring to the COVID issue based cost effectiveness or...
Yes. So in your initial speech, you said that COVID has helped us discover various cost-effective ways of doing business?
Yes. No, no, let me just -- let's say, I -- as CFO, if you had asked me about 5 months ago, if -- could I think in terms of closing the accounts of this diversified company, sitting at home and having all my people working from different distance, the answer was, I would have argued to say that it is not possible. But the fact is that we've done it. The fact is that, we have even verified inventory through various means, at the various godowns and then had it certified by our warranters. So there are ways and ways of doing it. Now really, if you look at the -- the way that we look at it, do we really need so many offices? So many people can't work, can't people work from home? Do we -- is there some synergies that is possible by surrendering certain things. In a place like Mumbai, an average employee spends something like about 3 hours on the road. And you can cut that down and get better output. So just to give you a small instance of that. Similarly, when people like us have got -- cash is at a premium today and I'm sitting on a good amount of cash, yes, now how do I use that cash sensibly? Now I can trust for discounts from people who are cashed out and who would be very happy to cut down their margins, if they are able to see cash on the face of it. Similarly, so on and so forth, there are a number of things that we can really explore. The -- there are -- I mean we have brainstormed as a corporate management group, we have brainstormed, and there is a huge amount of initiatives really which are being drawn at different ways. And I think that is not just us, everyone in the industry, everyone in any business will be looking at it very, very differently and COVID -- post-COVID is a new normal, really.
The next question is from the line of Abhilasha Satale from Dalal & Broacha.
Congratulations on a good set of numbers in this tough environment. I have a couple of questions. One is, like, our margin has improved in UCP segment and on year-on-year basis during the quarter, so I just wanted to know that, are we changing our margin guidance going forward from this 11% to 12% earlier that you had given? And again, for the E&P segment also, if you could give some margin guidance because there, we have seen substantial margin shrinkage during the quarter. And the second thing is just like, how are our initial indicators in terms of the demand? Like is it 30%, 40%, 50% of the normal level, like, if you could just give some indication there?
Thank you for the question. We -- in general, we do not give a forward guidance in terms of what happens next quarter, et cetera. It's a play of very many different things. But in general, we have time and again quoted, as you have also mentioned that, the UCP segment margins we see in 11 -- in the range of about 11% to 12%. Why 11% to 12%? Because we always need to keep a certain amount of margin, which will help us to fight that competition. Because as I said, our view of success is keeping a good market share and at the same time, being able to grow profitably. So we are still at about 11% to 12%. If there is an opportunity at any point of time to increase our margins like, what happened in the last quarter or because of commodity increases or by way of price decreases, we would definitely do that and pass this back on to the bottom line. As far as the Projects business is concerned, I had mentioned that there are lots and lots of imponderables here and in the Project business, particularly, as per accounting standards, we have to take certain ECL provisions, which means that if a certain payment does not come in the pattern that it was coming in the previous years, then I need to put in a provision. This does not necessarily mean that the money is gone and lost. But in generally, it is a conservative accounting that we follow. And the Project businesses, as I have mentioned in my note both in the international and the domestic, there was some good questions that were asked on in terms of how do we really see the environment, et cetera. We have to be a little careful. And I would say that the near quarter Q1, Q2, Q3, et cetera, till the cash and liquidity starts improving, we might be forced to put on some provisions as things go on. But it's not to say that -- at the same time, the good part of it is that, if I'm able to do work post-COVID, then I have the order book, and I will be able to recognize revenue, I'll be able to recognize profitability also, simultaneous. So it's a play of both these things that I'm afraid, I can't give you much more direction now because, none of us really know how these things are going to go forward. Are we going to see a second spike? Are we going to see lockdown getting extended even further? We don't know.
The next question is from the line of Lavina Quadros from Jefferies.
Sir, just wanted to understand because you've seen certification deferments in the March quarter, is it possible that these revenues slow down into 1Q? So while, let's say, there's not much work on the ground for 2 months, might see some revenues slowing in because of March quarter or spilling over on the Engineering side?
No. What happens is that in Projects, depending upon the percentage, we go with a percentage completion method. So that is very key to being able to recognize revenue. Now if the work is -- can be done with the availability of labor and all of those things, then we will be able to take on the revenues. Also, in the project businesses, in the earlier part of the project, up to 20% of the turnover, we do not recognize any margin. In other words, the revenue is equal -- there is no -- the revenue starts kicking, it's put into our sheets as revenue, but the bottom line does not reflect the margin accordingly. Only after 20%, do we start recognizing revenue -- do we start recognizing profitability and margin. So when you look at that, there is -- when the new orders are taken, you will find certain quarters, where depending upon -- if I have, for example, if I have a very large order of INR 1,000 crores, still I'm able to do INR 200 crores of revenue on that, I'm not able to recognize the margin, although my EBIT margin could have been 10% on. So there is a bit of give and take on both sides, depending upon how the project actually progresses, how the certifications are done, what are the kind of payments that happen, where are the taking over certificate handed, where do we finish the defects liability period and get the return back and all of these things. So it's actually a fairly complex mix of various things that happen in the project business.
We'll be able to take one last question. We take the last question from the line of Bhavin Vithlani from SBI Mutual Fund. There seems to be no response from the line of Bhavin Vithlani. We'll take the next question. The next question is from Kiran Sebastian from Franklin Templeton.
Can you hear me?
Yes. Please go ahead.
You mentioned that the inventory is about 60 days. I wanted to clarify, does this include the manufacturer level inventory? That is the first question. Secondly on that, what is your best sense in terms of the inventory at the system-level for the industry? And finally, what should be the ideal number at this time of the year?
See when I mentioned 60 days, I was talking in terms of -- at the dealer. Yes? And if you think in terms of a system-level of inventory, it obviously depends upon the season and how things are going. Because if you look at the overall system, we keep building up inventory for the summer season. And then it depletes and again, it builds. So this is the kind of -- so it's a kind of a seasonal kind of inventory. Right now, the problem that we have as a manufacturer, I have sufficient and more inventory because I had catered for a very strong summer, okay? And that level of inventory that we have in our books is roughly about 90 days of inventory in terms of, if you take all the finished products, all everything else and you can also draw a reference to the capital employed that we had, we have indicated in the Unitary Cooling products. So that's roughly where it is. Now that will deplete very quickly. If we had -- we were able to sell, let us say -- right from March 12 onwards, if we were to dispatch it at the rate that we could have, it would have easily been a much, much happier situation. So 60 days of inventory at the dealer end, roughly take -- give or take, a little bit, this way, that way and we have sufficient almost about 90 days inventory at our end.
Okay. All right. And typically okay -- and typically year end there, the inventory level will be, how much at the manufacturer level? About 40 days?
Yes. Again, season to season. So we will build up our inventory in the last -- in the month of some from about November/December onwards we are starting to build up our inventory. And then there are months such as, let's say, in June/July, we might not have so much of inventory. But what we then have is raw material inventory, which we started picking in, to be able to manufacture for the next cycle. So it's kind of a -- it's -- because it's a seasonal business, it's not easy to give you a straight answer, but I've told you what we have right now.
We'll take that as the last question. I would now like to hand the conference back to the management team for closing comments.
Thank you very much for joining us, and I'm sure that there might be further questions. You feel free to pick up the phone with my colleague, Manish Desai or Vaibhav, both of whom are on the call, and we'll be happy to answer any questions. You might also like to have a look at the upload of the analysis and results, which would also give you an indication -- further indication of that might help answer some of the questions. Thank you very much, and thank you for your interest in Voltas. Manish, in case you want to say something?
No, sir. At ending -- to repeat what you rightly said, we are available for any further questions in terms of any answers if your questions were left out. Thanks to all of you for that.
Thank you.
Thank you very much. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.
Thank you.