Good morning, ladies and gentlemen. Welcome to the Orient Electric Q2 FY 2023 earnings conference call, hosted by PhillipCapital (India) Pvt Ltd. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Deepak Agarwal from PhillipCapital (India) Pvt Ltd. Thank you, and over to you, sir. Thanks. Good morning, everyone. On behalf of PhillipCapital (India) Pvt Ltd, I welcome you all to Orient Electric Limited Q2 FY 2023 earnings call. Today we have with us senior management represented by Mr. Rakesh Khanna, Managing Director and CEO, and Mr. Saibal Sengupta, Chief Financial Officer. Without taking more time, I would like to hand over the floor to the management for their opening remarks, post which we'll open the floor for Q&A. Thanks, and over to you, sir. Thank you. Thank you, Deepak. Good morning, everyone. I'm Rakesh Khanna. A very warm welcome to all of you, and thank you for joining us for our second quarter results discussion for the financial year 2023. COVID, now apparently behind us, continued global tensions, volatility of commodities and currency, sporadic severity of monsoons, and prevailing high inflation. The quarter has seen it all. The quarter under review has seen a decline in revenue and margins. However, a little deeper understanding of underlying reasons gives the confidence of a bright future ahead. To start with, the revenue decline is mainly in ECD segment. Even though we have continued to improve our share in Fans segment in every channel, our primary sales took a beating due to following factors. Firstly, there was destocking by trade channel. This had an industry-wide impact and the underlying reason was expectation of downward price correction by the trade, unpredictability of product mix after BEE Star Rating implementation from January. Second reason was our initiative of going direct in a few states, which led to sales reversals of MD stock and blackout period in the big states of AP and Telangana to facilitate a smooth transition to direct distribution. The good part is that in the states where we have started to stabilize the operations, we have witnessed a growth of more than 40% during the quarter with steep increase in market shares. We are confident that the other states will also stabilize well with good trend by the end of Q3, and good positive results will be visible by Q4. In exports, some key markets experienced economic and political instability impacting the revenue. Fans being a basic necessity, we are confident that the demand will come back very soon. Moreover, our initiative of developing new markets is paying off well with significant gains coming from these new markets. In H1, coolers have grown by more than 140%, and water heaters have grown by a modest 14%. In Lighting and Switchgear segment, we continue to outperform the industry average both in revenue growth and margins. The Lighting and Switchgear segment reported a revenue growth of nearly 15% for Q2 financial year 2023, and 38% for H1. We continue to expand our B2B reach, registering a 40% growth in revenue during the quarter and H1. Revenue from consumer luminaires grew by nearly 17% and 45% in H1. OEL is fast emerging as a frontrunner in high growth facade and smart lighting space with steady new influx of orders, and the company remains optimistic about its prospects going ahead with a healthy inquiry pipeline. OEL won the contract for Srinagar's Smart Lights project under the Smart Cities program. Company was afforded the prestigious contract to design and provide facade lights for decorating the Kanpur Ganga Barrage to celebrate India's 75th year anniversary. In Lighting and Switchgear segment, OEL continued to post exceptional growth with three-year CAGR of 10% for Q2 and 9% for H1. During the quarter, we have launched house wires with limited geographies and have received very encouraging initial response from the trade. For Q2 financial year 2023, our EBITDA dropped by 2.3% year-on-year. Lower volumes with high-cost inventory and competitive pricing pressure put stress on margin. Lower sales volumes led to reduction in production and purchase, which had a cascading impact on unabsorbed manufacturing overheads. All this resulted in an adverse impact on the contribution margins, causing lower leverage of the fixed overheads. However, the execution of long-term strategic plans continued unhindered, and incremental investments were made in the quarter towards additional spends year-on-year on account of advertisement and brand building and consultancy expenses, which has an impact of 4% of revenue for Q2 and resulting in 34% growth of other expenses. After correcting these additional investments, the normalized EBITDA would have been around 6%, which is still higher than pre-COVID levels. Our working capital has been reduced from 44 days last year to 41 days in current year from 34 days in June 2022. At an entity level, for the quarter ended 30 th September 2022, OEL posted revenues of INR 511 crore with a growth of 17.5% compared to the pre-COVID year financial year 2020. Adjusting for the extraordinary one-time loss of revenue due to destocking, transition to direct distribution in Fans, destocking in trade, and disrupted key markets in exports, normalized growth revenue would have been around 31.5% versus financial year 2020. On an overall outlook, in Fans, the current vacuum in trade channel created due to destocking is likely to result in strong offtake by trade in coming quarters. Moreover, there is likely to be increased spending by all major brands and government to create awareness about power consumption, thus leading to a trigger to replace the high power consuming fan, pushing the growth further. The one-time corrections for distribution restructuring in select states will bear fruits. Lighting and Switchgear business is well placed to continue the growth journey and outperform industry. We are focused on our long-term strategy of increasing market reach and market shares, profitability, better cost management and margin improvement. Our strategic Spark project is still ongoing to revamp our processes in GTM, cost excellence and digital business. Our new greenfield Hyderabad factory's construction is in full swing, which will soon add to our capacity of delivering top quality products with better managed costs. Our fundamentals of innovation and consumer centricity is continuously fortified. We are dedicated to deliver top quality innovative products to our consumers. I assume that you all must have read the investor release. On this note, I hand back to Deepak. Thank you, Deepak and team. Thanks, PhillipCapital, for organizing the call. Should we open up for questions? Yes. Thank you. Ladies and gentlemen, we will now begin with the question and answer session. Anyone wishing to ask a question may please press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is on the line of Rahul Gajare from Haitong Securities. Please go ahead. Good morning, gentlemen. I've got two specific questions, one on revenue and one on profitability. On the revenue front, you know, you did indicate the three reasons why the revenue was impacted in this particular quarter with exports, restructuring and the BEE transition. Typically, second quarter would be low on fans. I was just wondering, you know, do these reasons have such a large bearing on the entire ECD to see a 26% growth? That is the first part. Connected with this, you know, when you are talking about the distribution, you started this distribution for a quarter or so. So how much of, in terms of sales, how many states, you know, the states that you've covered, how much of that sales is covered in the states that you've already covered and, therefore, what is left? We get a sense of, you know, this restructuring will take how much time and impact on the revenue? Thanks. Rahul, can you please repeat only the question part of it? We understand your query on the redistribution. We just missed out on the question part. You know, the specific question over here was, you know, with respect to the distribution change that has happened and which has impacted the revenue, you've covered some states already. How much in terms of percentage of sales of fans is coming from the states that you have already covered in the distribution revamp? That's the question. The states that we have covered account for approximately 25% of the market potential. Okay, and that's what you've covered, which basically means it's a two-year journey is what I understand from our earlier conversation. You expect large part of this to be covered in this particular year or you think it is gonna be spread through this year and next year? No, Rahul, we have not said it's a two-year journey. For every state that we have taken, we are saying it's a two-quarter journey. When we say 25% of market potential has been covered, we have no intentions of covering 100%. We will only address those markets where the market share is low and, through the existing structure, we are not able to penetrate deeper. That's where we have taken calls of completely reshaping and redesigning the distribution. We will not touch the states where we are very strong because we believe that we have great strength in many states. Only in the weak states we will take this course. Okay. On the profitability, you have indicated, you know, your normalized EBITDA would have been 6%, which is about INR 30 crore of profit in this particular quarter, and the reported number is closer to INR 11 crore. There's a gap of about INR 20 crore. Can you help us identify the larger part of this cost or this difference? You have indicated there is a consulting cost and some other cost overruns, including RM. Which are the larger parts which has impacted your EBITDA margin in this particular quarter? Thanks. May I request Saibal to please take over this question? Hi, Rahul. I will just take that question. Basically, despite the implications on the profitability, we did not restrain in terms of getting through more investments, the long-term strategic investments. One of them, the critical one, is on the brand investment. On the advertising and promotion we have significantly spent in the quarter, especially on some of the new product interventions we have done, mainly in the Lighting segment. That was one significant part of that number that you are rightly stating. The second part is of course, as you know, we have engaged McKinsey for some of our very critical strategic initiatives, which obviously we see as an investment because there are two, three levers that they are partnering with us and that's where also the cost is sitting, which was not present in the base. These are the two major strategic investments. Of course, travel and others have obviously come back to normal on a year-over-year basis will be there, but we are not reflective of that. These are the two major which has impacted that which you are referring to the margin. This is something which one can expect to continue through the year, is it? Yes, it will, but it will not be in a linear fashion because as you can understand, in lighting, the advertisement, we had stepped it up because of the festival period where there's a good amount of traction and sales in varying proportions from quarter to quarter, but yes, it will continue and across the categories. Right. My last question is on the other income. We've seen significant spike in other income both in the first quarter and the second quarter, given the cash balance that we have. Just want to understand what is transpiring in the other income. That's my last question. Thank you. The other income is essentially some of the liquidations that we do and so basically pay comes in terms of the past provisions which get written back because of the liquidations in few of the items that we deal through. That is the reason from an accounting perspective they get into other income. This is obviously not a trend that will continue on a linear fashion on a quarter-on-quarter basis. Sure. That's very helpful. Thanks. All the best. Thank you. We'll move on to the next question. That is from the line of Ankur from HDFC Life. Please go ahead. Yeah. Hi, sir. Good morning. Thanks for your time. A couple of questions. One, you know, on the fan side, you know, you did highlight about this whole dealer destocking, you know, given the upcoming BEE transition, and, you know, as dealers expect price cuts by companies to clear inventory. Just trying to understand a little more because, you know, this is pretty well known, right? That starting January, this whole BEE transition happens. I'm assuming companies would have cut down their production already, right? And maybe moved over to the new rated fans. So, do we really see a big price cut in December to clear inventory? That's one. B, when do you see the restocking happening? Would it be more like a Q4-driven restocking as the summers come, you know, and the channel restocks? Is that the way we should look at it? Yeah. Ankur, it's a little difficult to exactly predict how it will go. You are right that all organizations are aware about the change, and all organizations must have been preparing. I can talk about us. We have prepared well for changeover to the new star. Most of the production from November, December is one star. And however, because the cost of one star is higher, till such time the zero star is selling, many retailers would want to continue to buy and sell the zero star. The expectation during such time of changeover is that there would be some who may not plan well, etc. Will the prices crash? Will they not crash? Will customer buy zero star? Will customer buy one star? Given that the retailers have a wait and watch kind of a trend. Mm-hmm. Mm-hmm. I agree that they will have to take a call. Members of the management team, we are unable to hear you. Ladies and gentlemen, we seem to have lost the audio from the management's line. Please stay connected while we try to reconnect them. Ladies and gentlemen, thank you for patiently holding. We now have the line for the management reconnected. Over to you, sir. Thank you. Ankur, did I answer your question in complete, or was it? No, sir, I think we lost you know, you were talking about the zero stars being cleared by dealers, and I think then we lost you after that. I'm sorry if you could, yeah. We're not really sure will the restocking happen at the end of quarter three or the beginning of quarter four. Mm-hmm. It will definitely happen. We have to just see how the overall market trend happens. We are prepared from our side with the stocks should the restocking happen in quarter three end or quarter four beginning. We are prepared both ways. Okay. Fair. Okay. Secondly, you know, you did also in your comments talk about higher competitive intensity, you know, in this segment. Just trying to understand, you know, are you seeing, you know, higher competition from existing players? Is it new players, you know, who've come in over the last year or so? If you could just help us, on this one. Sure. You see, whenever the volumes go down, the competitive intensity normally tends to increase because everybody struggles for gaining and protecting volumes. Mm-hmm. During this time, as the volumes fell down, the competitive intensity therefore increases. I believe this will be short-lived because the volumes will soon pick up, and restocking will happen, and the volumes will come back. Okay. It's just a temporary, you know, thing, right? Because of weaker volumes in the quarter. Okay. Fair. Yes. Lastly, sir, on the margin outlook, you know. Question dropped, Mr. Ankur. May we request that you return to the question queue? Sure. Okay. Thank you. Thanks. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in this conference, we request you to limit your questions to two per participant only. The next question is from the line of Bhargav from Kotak Mutual Fund. Please go ahead. Yeah. Good morning, team, and thank you for the opportunity. My first question is on this distribution rejig. Just wanted to know how many more states are under the consideration in terms of distribution rejig, and if we can also get some sense in terms of timing and how much these states contribute in terms of percentage of revenue for us. Good morning, Bhargav. In terms of distribution rejig, we have taken these states, and we would want to stabilize these states 100% before we pick up the next. There are definitely some more states where our market shares are low. We are definitely trying to improve the market share within the existing system as of now by implementing the good practices that we are placing in these new states. Should the market share not improve, we will pick up the new states. As of now, we have clear plans that till the end of this financial year, we will focus 100% to stabilize these states and gain significant market shares in these states before we pick up the new state. Okay. The potential, as I said, is these markets have a potential of around 25% on all India basis. A related question to this is that, is the model of implementation very similar across all these states or each state have their own nuances and hence the timing in terms of rollout could also extend beyond six months? This is exactly same. This is a complete white paper based design of the distribution system. 100% same across. All of them are digitized from day one. If all distributors who come on board are on DMS on day one, all the sales teams are on Salesforce automation from day one. That's the way we are going ahead with this. Okay. My last question is that. Sorry to interrupt, Mr. Bhargav. May we request that you return to the question queue? Okay, thank you. Thank you. The next question is on the line of Manoj Gori from Equirus Securities. Please go ahead. Yeah, very good morning, sir. Thanks for the opportunity. My first question would be like in the opening remarks, if I'm not wrong, you highlighted like we have gained market share across channels. At the secondary level, however, the primary sales were impacted. Is that correct? Yeah. I would just like to understand, like, if we look at like most of the peer companies have reported the numbers, so why there was a lag when we were gaining market share, so obviously others should have been impacted more. Mm. Vis-à-vis us. Can you throw some light over there? Perfect. As I said, in our numbers, first of all, there is a reduction because of some specific reasons. One, there is a negative sale that we had to record because of shifting to the new states where we had to take back the stock from the trade. We had blackout period. These are the reasons why our revenue is less. That's number one. Number two, our pipeline inventory in the rest part, which is 75% of the market, our pipeline inventory is much longer than any other player, because we have an MD structure. Therefore, during any such time, when the stock correction happens, our stock correction is actually one of the highest, and that's a lag. These are the reasons why the reported number, our primary sales would be lower than the other peer group companies' numbers. Right, sir. Secondly, if you look at, just want to get sense on a directional basis. Obviously we have lagged because of the initiatives that the company has been taking into various states on the redistribution side. Should we expect the outperformance versus other players in the industry, probably Q4 or probably in FY 2024 from the first quarter itself, and that should be a significant outperformance? I won't really comment on that part, because you're asking with respect to other capable players. All I will say is from our side, there would not be any such kind of thing holding us back. We will be gaining all the advantages of the new states by that time, by quarter four, and we should be completely enjoying healthier market share in all these new states. So that's on a positive side, you will see good results in quarter four. Right, sir. Lastly, on the wire side, can you share some thought process over there, like what we are targeting? What would be the manufacturing strategy over there? Can you throw some light like what's the longer term thought process over there? Initially we will be outsourcing till such time the volumes are small. We will reevaluate as we gain significant volumes. We do not intend to play very big in wires as a category, but we definitely want the portfolio to be complete, considering that the in-between influencers like electricians and traders would want a complete portfolio, and therefore presence of wires seems to be important. We will be playing with that perspective, and initial response from the trade is very good. We have therefore started with a select range only. We are not going all out with the complete range. We're going with a select range, select geographies. We will learn and then take a final call. Does it have any negative impact on the overall operational profitability as of now? How do we expect any impact, possible impact on the operating profits in the coming years? Just wanted to understand from an investment point of view for building brand in wires. Excellent. No negative impact. In fact, what happens is, it is the same infrastructure which can actually push the wires also. Therefore, it does not come with any incremental cost. It only comes with incremental revenue and margin. That's point one. Point two, because that we are now giving a complete portfolio to the partners, it helps to push the rest of the products also. This is a category which will only give us a positive, and I do not see any negative. Thanks, sir. That was very helpful. Thanks a lot, and wish you all the best, sir. Thanks, Manoj. Thank you. Thank you. We'll move on to the next question that is on the line of Rahul Agarwal from InCred Capital. Please go ahead. Hi, sir. Good morning, and season's greetings to everybody at Orient. Sir, first question was a clarification on the distribution rejig you mentioned. Should I assume that by March 2023, we'll be done with the states you mentioned, which is UP, Karnataka, AP and Telangana, and then over time we'll realize and we'll figure out what really happens with other weaker states, and we'll take it up sometime in first half of next year. Is that correct? The first part of the question, yes, you are correct. By the quarter four end, we should be done with these states. We will evaluate the next step if required thereafter. Got it. Could you give any indication like at least the number of weaker states left apart from these which you have already named? Like, there could be like another five or there could be another two? I would hope that we do not have to do anywhere else if we are able to gain our significant market shares as targeted in the other weaker states also by then. Got it, sir. My last question is, sir, on the fan inventory. The total inventory obviously we have in the balance sheet is INR 290 crore. If it's possible, could you share, you know, what is the split between non-rated and rated inventory right now? Should I assume that maximum by January end, you know, assuming that the channel fills, refills, restock, destock. By January end, once, you know, the entire non-rated fan inventory is out of the channel and they'll, you know, start buying rated fans because there's no option anyway because the summer 2023 will be very close? Given our inventory in terms of mix, we have already corrected most of it and non-star is a very small quantity left anyway. The non-star being manufactured is only what we are 100% confident that we will be able to sell and the trade really wants it during this period. Otherwise, non-star will not be manufactured. In terms of the total inventory, I don't think it will make a significant shift because inventory is based on how much inventory we require for the future sales. It should be based on that. I really do not see a link between these two things. Uh, by Jan. On your query that our inventory is healthy, answer is yes, the inventory is healthy. There is a very small quantity of non-star available with us now, which will easily get cleared in this month and the next month. Perfect, sir. Thank you so much and best wishes for the next year. Thank you so much. Thank you. A reminder to the participants, anyone wishing to ask a question, may please press star and one. The next question is on the line of Bhargav from Kotak Mutual Fund. Please go ahead. Yeah, thanks for the opportunity again. Sir, given that you mentioned, you have a very limited inventory of zero-rated fans, is it fair to say that the discounting intensity will only reduce as we near December and bulk of further discounting has already been done? Bhargav, yes, as far as we concerned, it will depend on how the competition is well prepared and how much stock the overall industry is carrying. That will decide how much discounting happens. From our side, our stock is fairly low, and we have very little pressure to sell the stock at any price. The last question is there any risk that the upcoming summer season may be a washout, given higher inventory with the channel of zero-rated fans, and they may not want to sort of stock the new energy rating in Q4? No, I do not see any such challenge, because it is only till such time that the previous inventory gets over, people have a wait-and-watch theory. Once that is done, it's over. It all depends on how much is the consumer demand. I personally believe from whatever figures that we are reading in terms of be it the travel and the kind of investments people are doing in terms of the housing sales, et cetera, I have a very strong belief that coming summer will be good. Consumer will be out there to buy and we all should be happy. Okay, sir. Thank you very much and all the very best. Thank you. Thank you. The next question is on the line of Achal from JM Financial. Please go ahead. Yeah. Good morning, team. Thank you for the opportunity. You know, my first question was, you know, in terms of the manufacturing, is it fair to say that the non-star is almost negligible now and all the fans what we are currently manufacturing have the star rating? No, Achal. We are manufacturing significant amount of non-star still because the trade wants it till the December period. But only very fast moving to the extent that the demand is there, only to that extent is being manufactured. A very rigorous planning process is in place so that we do not get stuck with any of the non-star as the transition happens. Got it. You know, in terms of the cost impact, you know, the non-BLDC fans will see a cost impact when they are converted into one, two, three, four stars. Can you help us understand what is the impact in terms of the cost? It depends on different fans. For example, a fan which already has a higher number of poles or is a very strong fan will not have as a percentage very high cost of converting from zero star to one star. A very low cost fan which is not very efficient will have a higher cost. If you want percentage, you can take anywhere between 10% down to 3%-4% is the kind of cost increase. Right. In the process, do you see that, you know, there would be an impact on the demand from, you know, at least in the, low end, and also, you know, the move from unorganized to organized players at the industry level? Some shift may happen, but I personally believe that as the awareness will start going up, people will start understanding the price that they pay by buying a lower cost product over a period of time. The awareness will significantly grow in terms of power efficiency, and I believe that more and more people will instead start shifting towards more power efficient fans, which will tend to take the average selling price higher. Got it. Just another question I had on the distribution rejig part. What I wanted to check is it fair to say that the states where you are weak in terms of the market share because of the current distribution structure, you are changing it to a direct dealer? If you can give some color as to what exactly are these changes. I've not understood your question, Achal. Can you repeat? In terms of the rejig, what does it mean? You know, are you moving to a direct dealer channel, or, you know, exclusive distributor and so on so forth? Okay. In these states, we go back to the drawing board. We look at the state. We divide the state in districts, in talukas, et cetera, and then we decide how much of the geography can be optimally distributed by a distributor, and thereby we divide the state. In each of those pockets, we go and look for a distributor whom we call a mapped market distributor for that particular geography. This distributor for fans is an exclusive distributor and is a non-retailing distributor. This distributor is responsible from day one to put a DMS system that is 100% visibility. His team should be on SFA along with our team, and it's clearly understood how many shops this person is responsible for and what share it do in that place. This way, we cover the entire states and appoint multiple distributors. Apart from that, there are some very large dealers who would want to buy directly from the company, and we also appoint those very large dealers as the direct dealers. This is the process by which we do and we're getting very good traction due to this. The retail is very happy because of this. The stock availability is very good. The service levels have gone tremendously up, and therefore we are seeing a very steep increase in the market shares in these states. Perfect. Thank you so much. If you could just help us with the market shares for FY 2022 in each of the categories. We don't have very syndicated data on the market share. Therefore, I will stay away from quoting market shares. Got it. Thank you so much, and wish you all the best. Thank you. Thank you. The next question is from the line of Keyur from ICICI Prudential Life Insurance. Please go ahead. Hi team. First of all, greetings of the Diwali. Sir, just want to ask, when we implement this star rating, any thoughts or discussion with the authorities how strictly or how it will be monitored or implemented? Basically, just one fear is that if this is not implemented properly, then there will be a mushrooming of fake star-rated fans which are not compliant, but would be lower in the price and that may dent the organized players. Just want to understand industry's efforts or your discussion with the authority, how this will be implemented. Keyur, these star rating, fortunately for fans, is not being implemented for the first time. There are many other categories where the authorities have gone through the process of learning how to implement. The implementation challenges are there and will remain. However, there are strong processes which the government has in terms of ensuring regularly picking up the stocks from the market, checking, reaching out to the manufacturer, and taking actions of the manufacturer where it is not as compliant. But yes, there would be challenges, but the government has done a very good job in ensuring that these star ratings are well implemented across the country. Second question, so star rated. Basically, it is mandatory to have a star rating. Star rated one and two or star rated one to three, all this will be similar to what our current fans are, and it will require lower technicals in. Is that the correct understanding? No, Keyur. In fact, most of the fans in the market today do not qualify for single star. Most of the induction fans will have to be, the specifications will have to be upped, to make them at least one star or two star. For five star, my own understanding is that as of now, only the BLDC fans will qualify for five star. Some technical changes are required, but still four star induction motors can be used, but for five star you will need a different motor and entire different ecosystem? Till now, yes. Okay, thanks a lot and all the very best. Thank you. Thank you. Thank you. The next question is from the line of Nikunj Gala from Sundaram AMC. Please go ahead. Yeah. Good morning, everyone. Sir, I just need one clarification, like two comments which you made on the call. On one side, we are saying there are already, you know, zero star inventory lines with the dealers, and we also don't know how the competition are positioned in terms of zero star, you know, inventory. There can be a case where we might have to give some discount or the competition might have to give discount. In one of your other comment you mentioned you are still producing zero star fans, just the dealers are asking for it. Like my main question is like, why are we producing even zero star today? Like these two comments seems to be contradicting. Just need clarification, you know. Look, Nikunj, see till December 31st, we, all the manufacturers can sell the zero star. Okay? Right. The zero star fan, the price is lower today. Okay? Yes. If some part of the trade wants to purchase the zero-star and do not want to start with one-star because the price is higher, one has to continue to supply what the market requires. This will come to an end because if by the end of December we want to be exiting with zero inventory of zero-star, and so would everybody else want to exit with that, most players would try to ensure that there is less of zero-star produced. It's as I said, there is a strong process in place, a rigorous thing going on in planning so that the transition is well managed. It's about managing what the market wants versus that we should not end up with any zero-star. Okay. Like, in few of the markets where you mentioned where there is a requirement for the zero star, but where there is a, you know, inventory, there are two states where, you know, zero star are not required. There is not possible to move those inventory to there. You know, just I'm trying to understand, you know, this is the case which happened in the other sector also, whether in auto when, you know, BS4 transition happened. The OEM, you know, two, three months ago started not producing, you know, those kind of, you know, vehicles and not give those to the dealers. Maybe at a, you know, industry level, some kind of, you know, arrangement that we won't produce at all and, you know, why to have those kind of, dead inventory, when we are going into Q4. Just want to understand that thought process. Because you, what you're saying is perfectly right, and the target is that we should not have any kind of a dead zero star inventory. That's the target. And that's where a very rigorous planning process has been put in place. We will ensure that we are not having any pressures of liquidating any of the non-star inventory. We're very clear on that. Sure. Yeah. Thank you. Thanks for your comments, sir. Yeah. Thank you. Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in this conference, we request you to limit your questions to two per participant only. The next question is on the line of Ashish Kacholia from Lucky Investment. Please go ahead. Good morning to the team. My question basically, sir, this change in the distribution model that we have kind of implemented, is it going to be for our entire portfolio of products and across the entire country, or it's going to be like in pockets? The distribution through a master distributor is only in fans, and therefore it is only in fans that we are making this change. In the rest of the products, we anyway do not have the master distributor concept. Okay. This, basically, it will be the same distribution model now across our entire product portfolio or it will have different distribution models for different product categories? Like what? I've not understood your question. Sorry. This master distributor model, what you mentioned. Yes. No, I'm just asking a simple question. Is our distribution model now uniform across the entire product range, or it's going to be different for different product ranges? When you say. You've changed the model in fans. When you say product range, are you? Changed the model in fans. Within fans you're talking product range? No. Across different products. Only for. Lighting. For lighting we are anyway direct. Okay. We do not have distributors for anything else. Now everything comes to a direct platform now. Is that what you're saying? In these states, yes. Okay. The rest of the states? Where we have the MD structure, that will continue. Okay. One question. We should be providing that. One country, one distribution model. Is that the objective eventually? No, Ashish, I mentioned this a while back that we have taken these states, six states. We are stabilizing in these six states. We are not planning to take up any new state till we completely stabilize. Thereafter, we will evaluate. If any state our market share consistently is not improving despite the efforts, we will choose to rejig in that particular state, but we have not taken any decisions as of now. Definitely we value our master distributor structures hugely because it's a phenomenal strength that we have. Some of the states we have excellent market shares and our strength is our master distributor. We would not want to touch those states. Okay, got it. Right, sir. All the very best. Thank you very much. Bye. Thanks, Ashish. Thank you. The next question is from the line of Rahul Agarwal from InCred Capital. Please go ahead. Yeah, thanks for the follow-up. Sir, one question on exports. You know, you highlighted some issues there. My understanding is, you know, our best years have been about INR 100 crore plus sales in exports and largely fans, almost like 7%-8% of total fan sales. Which is the largest geography facing this issue right now and how long does it take to recover? Or is it already done with and Q3, Q4 should be normalized? These are some states in the African markets where there is the political and economic turmoil. From whatever we see, some part of the markets may take a little longer, but the larger part we have already started getting those orders back now. The reason is that fans is a very basic kind of a product. Even if there is an economic and political turmoil, the basic necessity will remain. Therefore, even if the demand goes down, it will not go abruptly down, it will tend to come back. Got it, sir. Lastly, you know, assuming that by March 2023, which you alluded earlier that we are done with, you know, most of the states you've already named, and either BEE rating has a clear picture, you know, by that point of time, we obviously enter the summer season stocking. Channel is settled down. Raw material prices are in favor. Your new factory also comes up somewhere around April, May. Everything put together, do we see next year margins going back to pre-COVID levels? I'm talking about EBITDA margins going back to 8%-9%. I mean, should fiscal 2024 be a stable year? That's the question. Yes. Okay. Thank you, sir. Best wishes. Thanks. Thank you. The next question is on the line of Vinod. Please go ahead. Yeah, hi. Thanks for the opportunity. You mentioned that, I mean, all manufacturers will carry zero inventory of the zero-rated fans by December 31st. In your view, what is the likely channel inventory on December 31st? How many days do you think the channel will be carrying at that point of time? Vinod, very difficult because in case the channel picks up ahead of time and the whole restocking happens end of quarter three, the channel will carry large inventory. In case the restocking doesn't happen and the restocking happens in initial quarter four, then they will enter with a lot of vacuum. I do not have a clear visibility on that. We will see how the year ends. I can only tell you currently the channel has a huge vacuum and channel will fill up before the season. It'll either be end of the quarter three or the beginning of quarter four. Vinod, are you done with your question? Ladies and gentlemen, we seem to have lost the line for the current participant. We'll move on to the next. That is on the line of Chirag Lodaya from ValueQuest. Please go ahead. Yeah, thank you for the opportunity. Sir, I have only one question. In the states where you are moving from master distribution to direct distribution, what would be the impact on margins because of this change in that particular state, if we want to understand? Chirag, there would not be any major impact on the margins because you understand that there will be increased cost of reaching out to the trade. We do not see any gain in margin. That's likely to be neutral, but we do see significant gain in market shares in the areas where we're going, and we see a very strong increase in retailer recommendation rate, the service level increase. That's what is going to be the main differentiator. Got it. Sir, so just wanted to know if there is no material change in, you know, profitability eventually and, you know, you see increased service levels and improvement in market share, then, you know, why not take whole of India gradually, you know, step by step? Why you want to just focus on states where you have low market share at this moment? Because in some of the states we already have very high market share, very good service levels. There is no reason to disturb that. Okay. Okay, got it. Thank you. Yeah. Thank you. We'll move on to the next question. That is on the line of Manoj Gori from Equirus Securities. Please go ahead. Thanks, sir. Just one thing I need to understand is w ith regards to the transitioning from your zero rating fans to one, two, three and other star ratings. How do you actually envisage the demand moving probably? How is your production planning? How do you see the behavior of channel? And what should be the price differential within star ratings? And accordingly on a blended basis, how do you expect the realizations to move up? Manoj, I addressed this at length earlier. I will repeat it for you. First of all, we will stop manufacturing these fans, stop selling these fans from December 31st. We are aware that there has to be a transition, and there is a very strong process in place for planning and ensuring that the transition is smooth and we are not stuck with any zero-star rated. As far as the trade is concerned, the trade can continue to sell the non-star-rated products till such time they have the stock. There is a cost advantage in the non-star fans, and that cost advantage is to the extent of anywhere between 3%-10%, depending on the kind of fan. It is still to be seen how the consumers will react to this, star versus non-star ratings. Would the consumers prefer a low price non-star fan, or will the consumers prefer a star rated fans even at a higher price? This all will be seen once the consumer comes into the market. We will understand it by the quarter four, and that is where the unpredictability is there, and that's one of the reasons why the trade is playing the wait and watch scene as of now. Great, sir. That's all from my end, sir. Thank you. Thanks, Manoj. Thank you. Ladies and gentlemen, we'll be taking the last question. That is on the line of Gopal Nawandhar from SBI Life Insurance. Please go ahead. Thanks for the opportunity, sir. I don't, I'm not sure whether you talked about this. Has industry taken any price cuts during the last quarter because of the decline in the raw material prices? Yes. Yes. There are continuously price corrections being given, not exactly as a price change, but as in terms of schemes, et cetera. Some benefits have been passed on, and there would be some price corrections which will come now as the commodity prices have come and the earlier high cost inventory is getting liquidated. There will be some price corrections which will come. Can you quantify? Difficult to say. Okay. Because they vary a lot based on different categories, different fans. Okay. Sure. What kind of price increase one should expect because of the changes in the star rating? Do you, because considering the raw material prices are falling, will it be required to take any price increase or it can still offset that? The price. You are right that there will be some price drops and some price increase. You are absolutely right. What I can say is that the difference between the non-star and star rated fans, there will be a price difference of anywhere between 3%-10%. Okay. Sure, sir. Thanks a lot for that. Yeah. Thank you. Ladies and gentlemen, that is the last question. I now hand the conference over to Mr. Deepak Agarwal for his closing comments. Thanks, everyone, and thanks management for giving us this opportunity to host this call. Management, any closing remarks that you want to make? Thanks. Thank you, Deepak. Thank you for hosting. Thanks to all the participants for joining and your continued interest. We are very bullish going forward. We believe that the season is going to be good. I want to wish all of you happy festive season and the coming year. Looking forward to a good quarter three. Wish you all the best. Thank you. Thanks. Ladies and gentlemen, on behalf of PhillipCapital (India) Pvt Ltd, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.